School Grading and Institutional Contexts

We study how the relationship between students’ cognitive abilityand their school grades depend on institutional context. In a simple abstractmodel we show that unless competence standards are set at above-school levelor variation of competence across schools is low, students’ competence valua-tion will be heterogeneous, with weaker schools inflating grades or flatteningtheir dependence on competence, therefore reducing the information contentand comparability of school grades.Using data from the OECD-PISA 2003 Survey the model is applied to a sam-ple of 4 countries, namely Australia, Germany, Italy and The Netherlands. Wefind that in Australia schools heterogeneity does not affect grading practices; inthe other countries grades are inflated in weaker schools, uniformly in Germanyand The Netherlands, to a larger extent for weaker students in Italy.