We investigate how “top-N percent” policies in college admission affect diversity at the high-school level. It is well understood that these policies produce incentives for students to relocate to schools with weaker competition. We show theoretically that such school arbitrage can neutralize the policy at the college level but may partially desegregate high schools. These predictions are supported by empirical evidence on the effects of the Texas Top Ten Percent Law, indicating that a policy intended to support diversity at the college level actually helped achieve it in the high schools. Thus top-N percent policies may provide a new instrument for the long sought goal of achieving high school integration.
(This is an extended revision of a working paper entitled “College Admission and High School Integration”)
In recent years, several US states have introduced college admission policies that reward local rather than global relative performance by guaranteeing admission to students graduating in the top N-percent of their high school. This column examines how these policies affected socioeconomic and ethnic segregation at both the university and high school levels in the state of Texas. While the policies did not replicate the level of diversity in universities seen under earlier affirmative action policies, they did lead to a reduction in the overall level of ethnic segregation in high schools.
We study diversity policies such as affirmative action in college admission in the presence of local peer effects. If students are constrained in making side payments within peer groups, the free market allocation displays excessive segregation relative to the first-best, generating excessively disparate pre-college investments. Effective diversity policy must overcome market forces within as well as across college boundaries. Policies that engender diversity affect pre-college investment incentives. When based on achievement, policies can increase aggregate investment and income, reduce inequality, and increase aggregate welfare relative to the market outcome. They may also be more effective than student cross-subsidization by colleges.
We study an assignment with investment model to higlight a tradeoff between investment in human capital before (ex-ante system) and after (ex-post system) matching on the labor market. The ex-post system is better at coordinating investment within firms while the ex-ante system is better at reducing mismatches. We further show that the ability to transfer surplus within firms affects mismatches and the relative performance of the two systems. At high degrees of transferability they are equivalent but when transferability is very low the ex-post system outperforms the ex-ante system while with moderate transferability the reverse is true.
We compare the welfare and equity properties of two compensation rules for university professors; a laissez-faire policy where universities are free to discriminate between professors of different quality and an equity based compensation where wages must be equalised inside a university. In terms of matching inside universities, the laissez-faire equilibrium involves heterogeneity of types while the other policy leads to segregation. Laissez-faire is always more efficient in terms of surplus and total output. More surprisingly the ex-pst distribution of wages can be more unequal under the “equity based” compensation than under laissez-faire. This illustrates some possibly unintended consequences of well meaning policy makers’ and university administrators’ attempts to maintain equity.