Economics Research Seminar Series: Emil Temnyalov, UTS

Emil Temnyalov, University of Technology Sydney 

Topic

University admissions with reputational externalities

abstract

We study the design of university admissions systems in the presence of reputational externalities, whereby students care about the reputational value of their degree in the labour market. Specifically, we study the equilibria of college-based (i.e. "US-style") and degree-based ("Australian-style") admissions systems.

Degree-based admission systems can induce mis-matching, whereby students optimally choose a degree that they like less than their most preferred one, due to reputational considerations, leading to a welfare loss.

On the other hand, equilibria that feature such mis-matching can yield stronger vertical differentiation of degrees, i.e. more sorting of students by ability. This then leads to stronger positive assortative matching in the labour market, leading to a welfare gain.

Hence either college-based or degree-based admissions systems can yield higher aggregate welfare, depending on the importance of reputational concerns and the intensity of degree preferences.