Coarse Grades: Informing the Public by Withholding Information

Certifiers of quality often report only coarse grades to the public de-spite having measured quality more finely, e.g., “Pass ” or “Certified” instead of “73 out of 100”. Why? We show that coarse grades result in more information being provided to the public because the coarseness encourages those of middling quality to apply for certification. Drop-ping exact grading in favor of the best coarse grading scheme always reduces public uncertainty because the extra participation outweighs the coarser reporting. In some circumstances, the coarsest meaningful grading scheme, pass-fail grading, is the most informative. JEL: D82, L15. Grades are often coarse. Rather than an exact number or rank, grades are usually only a rough indication of quality such as a letter grade or even just a pass-fail grade. Many safety organizations certify that a product is safe with a seal of approval that does not indicate whether the product barely passed safety tests or passed them by a wide margin. And environmental organizations typically certify environmental quality with a simpl