This paper uses data from a four-year college in Taiwan to examine the effect of adopting a stricter dismissal policy on course selection, student effort, and grading practices. Under the new rule, students are dismissed if they fail 50 percent or more credits in any two semesters as opposed to two consecutive semesters. The results show students who had failed 50 percent or more credit hours in a semester are more likely to strategically enroll in leniently graded courses after the policy change, especially in classes with a low failure rate. Study time and class attendance increase significantly after the policy change, suggesting the policy has achieved its goal of encouraging student effort. Instructors are found to grade more leniently after the policy change and the effect remains strong after student effort is controlled for. More importantly, instructors lower grading standards mainly through failing fewer students, as opposed to giving higher grades.

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