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Salience in Quality Disclosure: Evidence from the U.S. News College Rankings

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  • Michael Luca

    ()
    (Harvard Business School, Negotiation, Organizations & Markets Unit)

  • Jonathan Smith

    ()
    (Advocacy and Policy Center - College Board)

Abstract

How do rankings affect demand? This paper investigates the impact of college rankings, and the visibility of those rankings, on students' application decisions. Using natural experiments from U.S. News and World Report College Rankings, we present two main findings. First, we identify a causal impact of rankings on application decisions. When explicit rankings of colleges are published in U.S. News, a one-rank improvement leads to a 1-percentage-point increase in the number of applications to that college. Second, we show that the response to the information represented in rankings depends on the way in which that information is presented. Rankings have no effect on application decisions when colleges are listed alphabetically, even when readers are provided data on college quality and the methodology used to calculate rankings. This finding provides evidence that the salience of information is a central determinant of a firm's demand function, even for purchases as large as college attendance.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 12-014.

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Length: 29 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:hbs:wpaper:12-014

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  1. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.).
  2. Amy Finkelstein, 2009. "E-ZTAX: Tax Salience and Tax Rates," The Quarterly Journal of Economics, MIT Press, vol. 124(3), pages 969-1010, August.
  3. Stefano DellaVigna & Joshua M. Pollet, 2007. "Demographics and Industry Returns," American Economic Review, American Economic Association, vol. 97(5), pages 1667-1702, December.
  4. Bruce Sacerdote, 2001. "Peer Effects With Random Assignment: Results For Dartmouth Roommates," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 681-704, May.
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Cited by:
  1. Stephen Gibbons & Eric Neumayer & Richard Perkins, 2013. "Student Satisfaction, League Tables and University Applications," SERC Discussion Papers 0142, Spatial Economics Research Centre, LSE.
  2. Conlin, Michael & Dickert-Conlin, Stacy & Chapman, Gabrielle, 2013. "Voluntary disclosure and the strategic behavior of colleges," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 48-64.
  3. Caroline Elliott & Kwok Tong Soo, 2012. "The International Market for MBA Qualifications," Working Papers 24284581, Lancaster University Management School, Economics Department.
  4. Michael Luca & Jonathan Smith, 2013. "Strategic Disclosure: The Case of Business School Rankings," Harvard Business School Working Papers 14-010, Harvard Business School.
  5. Elliott, Caroline & Soo, Kwok Tong, 2013. "The international market for MBA qualifications: The relationship between tuition fees and applications," Economics of Education Review, Elsevier, vol. 34(C), pages 162-174.
  6. Michael Luca, 2011. "Reviews, Reputation, and Revenue: The Case of Yelp.com," Harvard Business School Working Papers 12-016, Harvard Business School.

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