Question

. Many high schools today have “no-zero” policies. That is, if a student doesn’t submit their homework they still get 50 percent; if a student cheats on their exam, they can retake the exam without penalty; and so forth. a. Do you think practices like this improve or reduce education as an economic signal? Carefully explain. (1 point) b. Defenders of the policy say that cheating on an exam reflects a “behavioral” issue rather a “knowledge” issue and so cheating should not be punished (such as earning a lower grade or a zero on an exam that the student cheated on). Can you think of a moral hazard problem with this policy? Is this also a transaction cost problem? (2 points) c. Suppose a struggling student has a “real” grade of 28 percent but, due to the non-zero policy, has an actual grade of 50 percent. Suppose in the last half of the semester they work hard (turning in all their assignments, attend classes, etc.) and score a 52. What is the marginal value for their added work? (1 point) d. How might your answers in (a), (b), and (c) amount to a criticism of a no-zero policy? (1 point)

Answer 1

a) Practices like 'no-zero policy' reduce the education signalling. Education signalling refers to the process by which the employer gets a signal about a potential employee based on their credentials. When there is a policy like no-zero, the employer will not be able to segregate between people who got their scores due to ability and people who got scores due to policy.

b) There is a moral hazard problem associated with this policy. The students get a confirmation that they would passp scorea, even without hard work, thus creating moral hazard problem. This also gives encouragement to other students to cheat as well and get away from hard work. This is also a transaction cost problem because it increases the cost of hiring by firm's due to poor signalling and moral hazard.

c) The marginal value of their added work will be the difference between the score with and without the hard-working,i.e, (52-50)= 2. ( We do not consider the real value because it doesn't get accounted in the student's score)

d) The answers in part a,b and c, points out that ''no-zero policy' induces moral hazard problem and creates lack of encouragement to study among children( due to poor increment in marginal value of extra efforts made). It also creates problems in education signalling,thus affecting the hiring decusdeci and costs of the firm.