TY - JOUR
T1 - Student portfolios and the college admissions problem
AU - Chade, Hector
AU - Lewis, Gregory
AU - Smith, Lones
N1 - Funding Information:
Theanalysisofthederivativesofσi,i=1,2,withrespecttoΔ2isanalogous. Step3:BothCollegePreferenceCase.Supposenowthatpi1=pi2=pi=0andthusΔ1=Δ2=Δ=0.Nowletpi increase. Replacing in the analysis above Δi, i=1,2, by Δ and differentiating, yields, after evaluating the expression at Δ=0,∂σi/∂Δ=φ>0,i=1,2.Asbeforeσi−Δgoesdown,therebyprovingtheresult. ‖ Acknowledgments. We would like to thank Philipp Kircher (Co-Editor) and three anonymous referees for their helpful comments and suggestions. Greg Lewis and Lones Smith are grateful for the financial support of the National Science Foundation. We have benefited from seminars at BU, UCLA, Georgetown, HBS, the 2006 Two-Sided Matching Conference (Bonn), 2006 SED (Vancouver), 2006 LatinAmerican Econometric Society Meetings (Mexico City), and 2007 American Econometric Society Meetings (New Orleans), Iowa State, Harvard/MIT, the 2009 Atlanta NBER Conference, and Concordia. Parag Pathak and Philipp Kircher provided useful discussions of our article. We are also grateful to John Bound and Brad Hershbein for providing us with student college applications data.
PY - 2014/7
Y1 - 2014/7
N2 - We develop a decentralized Bayesian model of college admissions with two ranked colleges, heterogeneous students, and two realistic match frictions: students find it costly to apply to college, and college evaluations of their applications are uncertain. Students thus face a portfolio choice problem in their application decision, while colleges choose admissions standards that act like market-clearing prices. Enrollment at each college is affected by the standards at the other college through student portfolio reallocation. In equilibrium, student-college sorting may fail: weaker students sometimes apply more aggressively, and the weaker college might impose higher standards. Applying our framework, we analyse affirmative action, showing how it induces minority applicants to construct their application portfolios as if they were majority students of higher caliber.
AB - We develop a decentralized Bayesian model of college admissions with two ranked colleges, heterogeneous students, and two realistic match frictions: students find it costly to apply to college, and college evaluations of their applications are uncertain. Students thus face a portfolio choice problem in their application decision, while colleges choose admissions standards that act like market-clearing prices. Enrollment at each college is affected by the standards at the other college through student portfolio reallocation. In equilibrium, student-college sorting may fail: weaker students sometimes apply more aggressively, and the weaker college might impose higher standards. Applying our framework, we analyse affirmative action, showing how it induces minority applicants to construct their application portfolios as if they were majority students of higher caliber.
KW - Affirmative action
KW - Assortative matching
KW - College admissions
KW - Portfolio optimization
KW - Sorting
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U2 - 10.1093/restud/rdu003
DO - 10.1093/restud/rdu003
M3 - Article
AN - SCOPUS:84897090080
SN - 0034-6527
VL - 81
SP - 971
EP - 1002
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 3
M1 - rdu003
ER -