Leading US universities inflate their grades to maximise the proportion of their students who land top jobs, economists have suggested.

Sergey Popov, a final-year PhD student at the University of Illinois at Urbana-Champaign, told the Royal Economic Society's annual conference this week that his theory explained the higher grade point averages (GPAs) and grade inflation seen in leading US universities over the past 50 years.

Mr Popov's paper, "University competition, grading standards and grade inflation", co-authored with Dan Bernhardt, professor of economics at Illinois, assumes that universities "choose (a) grading standard to maximise the total wages of (their) graduates".

It argues that top universities have an incentive to set lower standards than "lesser" universities because it is not possible for companies, which typically use university grades to distinguish between students, to tell the difference between "good" and "bad" A-grade students.

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"With the same grading standards, a Harvard A-student will be more productive than an Illinois A-student," Mr Popov told ³ÉÈËVRÊÓƵ ahead of the conference in London. "So Harvard A-students will be hired more eagerly. Harvard knows that, so it thinks: 'Let's (lower) the grading standards a little.' This works because the average productivity (of Harvard A-students) will still be higher."

He said his theory suggested that grade inflation would be highest in top universities.

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As the number of skilled jobs increased over time, all universities had an incentive to inflate their grades so that more of their students would be eligible for such jobs.

But, again, there was an opportunity for lower-quality students from top universities to "piggyback" on the demand for their more able peers.

He said this incentive was only increased by the prestige of top universities, which meant that some firms were prepared to tolerate lower productivity or social skills from their graduates in return for the kudos of hiring them.

Mr Popov said lesser universities could not afford to employ similar tactics because if the average productivity of A-students from Illinois dropped, "no one" would hire one.

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The consequence, he said, was that grading standards potentially became unnecessarily tough at lesser institutions.

He agreed that, to some extent, the higher GPAs attained by students from elite universities were merely a reflection of the students' greater abilities.

But he said the risk was that the process went so far that there were Harvard graduates in top jobs who would not have got an A at Illinois and who had fewer academic gifts and social skills than every Illinois A-student. This, he said, was not "socially optimal".

Mr Popov said that common grading standards would redress this situation. "But, of course, one can set equal grading standards wrongly, and make everyone much worse off," he added. "I would implement a sort of universal certification, but with all the fields and majors, it would be hard to execute."

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While he admitted there were "very little" empirical data on grade inflation against which to assess how closely his model mirrored reality, he said that it was in line with the data published on the website .

The site indicates that the average GPA score at US universities has been rising since the 1960s, with grade inflation at private universities outstripping that at public universities.

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Between 1991 and 2007, the average GPA at a sample of public institutions rose by 5.6 per cent, to 3.01. Private institutions saw a 6.8 per cent rise, to 3.30.

paul.jump@tsleducation.com.