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Chapter 17: Problem 3

A major university bans the assignment of \(D\) or \(F\) grades. It defends its action by claiming that students tend to perform above average when they are free from the pressures of flunking out. The university states that it wants all its students to get As and Bs. If the goal is to raise overall grades to the B level or above, is this a good policy? Discuss this policy with respect to the problem of moral hazard.

Short Answer

Expert verified
The grading policy of this university might lead to the problem of the moral hazard. While the policy could alleviate some of the pressure on students, it might also reduce the motivation to study hard and excel, as students know they're guaranteed to pass regardless of their efforts. Hence, while the policy might increase overall grades, it might have unintentional consequences for learning outcomes.

Step by step solution

01

Understanding the policy

The university has implemented a policy where no student will receive a grade lower than a C. This is done in order to alleviate pressure and encourages everyone to aim for A's and B's.
02

Evaluating the potential effects of the policy

With the new grading policy, students might feel less pressure to study hard since they are assured to pass, no matter their performance. This might lead to a reduction in overall student effort, as the risk of failure has been mitigated. This is a classic example of a moral hazard, as students are shielded from the risks of their own lack of effort.
03

Discussing the moral hazard

In this scenario, the moral hazard is that students may not put in their best efforts knowing that they cannot fail the course. Although the university's intention might be to improve students' performance by reducing the pressure of failing, it might have the unintended consequence of encouraging students to put in less effort, leading to a decrease in the quality of learning.

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