Student portfolios and the college admissions problem

Hector Chade, Gregory Lewis, Lones Smith

Research output: Contribution to journalArticlepeer-review

35 Scopus citations

Abstract

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.

Original languageEnglish (US)
Article numberrdu003
Pages (from-to)971-1002
Number of pages32
JournalReview of Economic Studies
Volume81
Issue number3
DOIs
StatePublished - Jul 2014

Keywords

  • Affirmative action
  • Assortative matching
  • College admissions
  • Portfolio optimization
  • Sorting

ASJC Scopus subject areas

  • Economics and Econometrics

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