“If somebody’s paying $150,000 for a law school degree, you don’t want to call them a loser at the end,” says Stuart Rojstaczer, a former geophysics professor at Duke who now studies grade inflation. “So you artificially call every student a success.”
From a recent NY Times article on grade inflation in law schools. One thing I didn't know about law schools is some of the top law schools (Harvard, Standford, Yale, Cal) have eliminated grades according to the article, moving to a pass fail system.
I would guess non-top schools won't be eliminating grades, because I think it would create a lemon problem. The lemon problem is a classic story from economics. In the problem you have a seller traditionally a used salesman and a buyer. The seller (or in this case the law school) knows more about the student than the buyer the hiring firm. If the firm can't tell good from the bad students apart or the buyer can't tell the good cars from the bad cars (lemons), then fewer students are hired and cars are bought. The solution is to provide a GPA or for used car an independent inspection, so buyers can separate the two. Then high quality students will get hired with higher salaries and high quality used cars will go for higher prices.
I'm not sure if this is the case but potentially one reason top schools might have an incentive to make it unclear who is good, is that typically the best students might be on scholarship while the not as good students are paying full tuition. So by hiding the quality of their students top schools can attract better students to pay full tuition.
Lower quality schools cannot hide grades, because they cannot convince hiring firms their average student is of sufficient quality to hire.
I don't know anything about law schools though, so please don't sue me if I'm wrong.