Utah State University Department of Economics
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This paper estimates the deadweight loss associated with not failing an optimal number of students. We find that this loss ranges between $3,200 and $4,600 per student over the student's four-year undergraduate career. One possible ramification of adopting a more stringent student-failure policy (to recoup the deadweight loss) is investigated. We find that an institution can promote greater effort on the part of both students and faculty by encouraging faculty to fail more students.
Arthur J. Caplan. "Failing Students Optimally" Economics Research Institute Study Paper
Vol. 17 (2004) p. 1 - 29
Available at: http://works.bepress.com/arthur_caplan/93/