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Coarse Grades: Informing the Public by Withholding Information

Author

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  • Rick Harbaugh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Eric Rasmusen

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

Certifiers of quality often report only coarse grades to the public despite 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. Dropping 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.

Suggested Citation

  • Rick Harbaugh & Eric Rasmusen, 2012. "Coarse Grades: Informing the Public by Withholding Information," Working Papers 2012-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2012-06
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    Cited by:

    1. Choi, Jay Pil & Mukherjee, Arijit, 2019. "Optimal certification policy, entry, and investment in the presence of public signals," Working Papers 2019-6, Michigan State University, Department of Economics.
    2. Alex Frankel & Navin Kartik, 2019. "Improving Information from Manipulable Data," Papers 1908.10330, arXiv.org, revised Feb 2021.
    3. Tan, Teck Yong, 2023. "Optimal transparency of monitoring capability," Journal of Economic Theory, Elsevier, vol. 209(C).
    4. Gao, Pingyang & Jiang, Xu, 2020. "The economic consequences of discrete recognition and continuous measurement," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    5. Bilancini, Ennio & Boncinelli, Leonardo, 2018. "Signaling to analogical reasoners who can acquire costly information," Games and Economic Behavior, Elsevier, vol. 110(C), pages 50-57.
    6. Ian Ball, 2019. "Scoring Strategic Agents," Papers 1909.01888, arXiv.org, revised Oct 2023.
    7. Martin Gregor, 2021. "Electives Shopping, Grading Policies and Grading Competition," Economica, London School of Economics and Political Science, vol. 88(350), pages 364-398, April.
    8. Aner Sela, 2022. "Status Classification By Lottery Contests," Working Papers 2206, Ben-Gurion University of the Negev, Department of Economics.
    9. Kai Barron & Tilman Fries, 2023. "Narrative Persuasion," Rationality and Competition Discussion Paper Series 469, CRC TRR 190 Rationality and Competition.
    10. Lichtig, Avi & Weksler, Ran, 2023. "Information transmission in voluntary disclosure games," Journal of Economic Theory, Elsevier, vol. 210(C).
    11. Arieli, Itai & Babichenko, Yakov & Smorodinsky, Rann & Yamashita, Takuro, 2023. "Optimal persuasion via bi-pooling," Theoretical Economics, Econometric Society, vol. 18(1), January.
    12. Maryam Saeedi & Ali Shourideh, 2020. "Optimal Rating Design under Moral Hazard," Papers 2008.09529, arXiv.org, revised Jul 2023.
    13. Jay Pil Choi & Arijit Mukherjee, 2020. "Optimal certification policy, entry, and investment in the presence of public signals," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 989-1013, December.
    14. Yunus C. Aybas & Eray Turkel, 2019. "Persuasion with Coarse Communication," Papers 1910.13547, arXiv.org, revised May 2024.
    15. Adriani, Fabrizio & Sonderegger, Silvia, 2019. "A theory of esteem based peer pressure," Games and Economic Behavior, Elsevier, vol. 115(C), pages 314-335.
    16. Papadopoulos, Sokratis & Kontokosta, Constantine E., 2019. "Grading buildings on energy performance using city benchmarking data," Applied Energy, Elsevier, vol. 233, pages 244-253.
    17. Jordan Martel & Edward Dickersin Van Wesep & Robert Van Wesep, 2022. "Ratings and Cooperative Information Transmission," Management Science, INFORMS, vol. 68(12), pages 9175-9197, December.
    18. Bizzotto, Jacopo & Harstad, Bård, 2023. "The certifier for the long run," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    19. Baranchuk, Nina & Prasad, Ashutosh, 2023. "Design of product quality scales for conveying information by infomediaries," International Journal of Research in Marketing, Elsevier, vol. 40(1), pages 210-225.
    20. Mallory Elise Flowers & Daniel C. Matisoff & Douglas S. Noonan, 2020. "In the LEED: Racing to the Top in Environmental Self‐Regulation," Business Strategy and the Environment, Wiley Blackwell, vol. 29(6), pages 2842-2856, September.
    21. De Chiara, Alessandro & Manna, Ester, 2022. "Corruption, regulation, and investment incentives," European Economic Review, Elsevier, vol. 142(C).
    22. Chong Huang & Fei Li & Xi Weng, 2020. "Star Ratings and the Incentives of Mutual Funds," Journal of Finance, American Finance Association, vol. 75(3), pages 1715-1765, June.
    23. Emmanuel Paroissien & Michael Visser, 2020. "The Causal Impact of Medals on Wine Producers' Prices and the Gains from Participating in Contests," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1135-1153, August.
    24. Nadar, Emre & Ertürk, Mine Su, 2021. "Eco-design of eco-labels with coarse grades," Omega, Elsevier, vol. 99(C).

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    More about this item

    Keywords

    certification; grades; disclosure;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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