Grade uncertainty and the adverse selection of erasmus students: A Spanish experience

Abstract

Erasmus scholarships are generally allocated on the basis of academic merit, and yet there is a growing concern in some Spanish universities that beneficiaries are often worse students than average. I argue that this paradox may be due to an adverse self-selection of applicants caused by the increased information asymmetry between students and teachers in study-abroad programmes. Such self-selection will have a greater impact in countries where Erasmus is widely available, in which the effect of any merit-based supply-side selection will be smaller. Faced with uncertainty about the performance of individual mobile students, teachers may tend to base their grades on the average performance of mobile students. This will (1) reduce the relationship between academic ability and the final GPA, and (2) discourage good students from participating. I find empirical support for both hypotheses by applying a Heckman endogenous switching-regime model to data from the academic records of 400 graduates from a Spanish university, including 68 Erasmus students. I discuss possible solutions, such as awarding differentiated degrees to Erasmus students. Although the results of this case cannot be automatically translated to other universities or countries, the method could be exported to other cases where there are similar concerns.