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In this paper we construct a theory about how the expansion of higher education could be associated with several factors that indicate a decrease in the quality of degrees. We assume that the expansion of tertiary education takes place through three channels, and show how they are likely to reduce average study time, academic requirements and average wages, and inflate grades.First, universities have an incentive to increase their student body through public and private funding schemes beyond a level where they can keep their academic requirements high. Second, due to skill-biased technological change, employers have an incentive to recruit staff with a higher education degree. Third, students have an incentive to acquire a college degree due to employers' preferences for such qualifications, the university application procedures and through the growing social value placed on education.We develop a parsimonious dynamic model in which a student, a college and an employer repeatedly make decisions about requirement levels, performance and wage levels. Our model shows that if i) universities have the incentive to decrease entrance requirements, ii) employers are more likely to employ staff with a higher education degree and iii) all types of students enrol in colleges, the final grade will not necessarily induce weaker students to study more to catch up with more able students. In order to re-establish a quality-guarantee mechanism, entrance requirements should be set at a higher level. CEPS Working Documents are intended to give an indication of work being conducted within CEPS' research programmes and to stimulate reactions from other experts in the field. The opinions expressed in this document are the sole responsibility of the authors and do not necessarily represent the official position of CEPS.

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