MARKETS WITH MARKET POWER - Tufts University

The Grading Game
a) suppose that I graded using a hard-core curve. 1/10 of the students get an "A"; 2/10 get "B";
4/10 get "C"; 2/10 get "D"; and 1/10 get "F"
b) Suppose that one’s relative grade reflects both relative preexisting talent, luck, and relative
effort.
c) Since we don’t have any control over talent or luck, if people want higher grades, they need
to work harder.
d) the problem is that there’s a limited number of As and Bs, so that the students are all
competing over them. If I work hard and move up to an A, then someone else is pushed
down.
e) thus, there's an incentive for the students to restrict their efforts. If everyone colludes to not
work very hard, you'd still see pretty much the same distribution of grades as when
everybody works hard. The benefit is that less effort is needed, though less economics is
learned. If grades are all that's important to you, then the latter is unimportant.
f) the problem of free riders can undermine the attainment of the collective good. These are
students who either care about the grade enough that they are willing to take advantage of
their fellow students by working more than agreed upon, in order to rise in the ranks. Or
these students might really want to learn economics.
g) a well-organized cartel of students could make sure that free riders don't cheat. They could
throw big parties the night before the exam and make sure that everyone attends. Perhaps
punish the ones who "free ride" on the rest.
Chapter 12 − Markets with Power 21