Coarse Grades: Informing the Public by Withholding Information
25 Pages Posted: 24 Oct 2012
Date Written: October 24, 2012
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.
Keywords: certification, eco-labels, persuasion, standards
JEL Classification: D82, L15
Suggested Citation: Suggested Citation