Students' Social Origins and Targeted Grade Inflation

Grade inflation or soft grading is a common feature of the educational systems of many countries. In this paper I analyse grade inflation in a setting in which students differ in social background, and the grading policy can be targeted according to student type. I consider a signalling game where firms decide whether to hire students and their salary after observing their grades and social background, a university can inflate grades, when students decide whether to attend university. A targeted grade inflation may have redistributive effects by raising the salary of students with disadvantaged social background, if their grades are less inflated than other students'.