Several papers have proposed that the grading system affects students' incentives to exert effort. In particular, the previous literature has compared student effort under relative and absolute grading systems, but the results are mixed and the implications of the models have not been empirically tested. In this paper, I build a model where…

The No Child Left Behind Act imposes sanctions on schools if the fraction of students demonstrating proficiency on a high-stakes test falls below a statewide pass rate. While the motivation behind this system is improved public school performance, it also provides incentives for schools to focus educational resources on the marginal student rather…