School Grading and Institutional Contexts

We study how the relationship between students\u2019 cognitive ability and their school grades depend on institutional context. In a simple abstract model we show that unless competence standards are set at above-school level or variation of competence across schools is low, students\u2019 competence valua- tion will be heterogeneous, with weaker schools inflating grades or flattening their dependence on competence, therefore reducing the information content and 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. We find that in Australia schools heterogeneity does not affect grading practices; in the other countries grades are inflated in weaker schools, uniformly in Germany and The Netherlands, to a larger extent for weaker students in Italy