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Anti-Lemons: School Reputation, Relative Diversity, and Educational Quality

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Author Info

  • MacLeod, W. Bentley

    ()
    (Columbia University)

  • Urquiola, Miguel

    ()
    (Columbia University)

Abstract

Friedman (1962) observed that the ability of firms to acquire and maintain reputations for quality is a key ingredient for the efficient provision of goods and services in a market economy. This paper explores the implications of school reputation for skill acquisition and labor market outcomes in an otherwise competitive market. We find that reputation effects can explain several puzzling findings in the economics of education, including the fact that competition can, but does not always, improve skill acquisition. This result follows from an anti-lemons effect (in contrast to Akerlof's lemons effect) that arises when schools can enhance their reputation by positively selecting their students. This leads to excess demand for "high quality" selective schools that drive out non-selective schools. This in turn reduces "relative diversity", a measure of ability dispersion in a school, leading to lower skill acquisition.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6805.

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Length: 38 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6805

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Related research

Keywords: education; reputation; competition; labor markets;

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References

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  1. Babcock, Phillip & Marks, Mindy, 2010. "The Falling Time Cost of College: Evidence from Half a Century of Time Use Data," University of California at Santa Barbara, Economics Working Paper Series qt7rc9d7vz, Department of Economics, UC Santa Barbara.
  2. Arnott, Richard & Rowse, John, 1987. "Peer group effects and educational attainment," Journal of Public Economics, Elsevier, vol. 32(3), pages 287-305, April.
  3. C. Kirabo Jackson, 2010. "Do Students Benefit from Attending Better Schools? Evidence from Rule-based Student Assignments in Trinidad and Tobago," Economic Journal, Royal Economic Society, vol. 120(549), pages 1399-1429, December.
  4. Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 1-35.
  5. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
  6. Jesse M. Rothstein, 2006. "Good Principals or Good Peers? Parental Valuation of School Characteristics, Tiebout Equilibrium, and the Incentive Effects of Competition among Jurisdictions," American Economic Review, American Economic Association, vol. 96(4), pages 1333-1350, September.
  7. MacLeod, Bentley, 2009. "Anti-Lemons: School Reputation and Educational Quality," Department of Economics, Working Paper Series qt3rc708kd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Lisa Barrow & Cecilia Elena Rouse, 2008. "School vouchers and student achievement: recent evidence, remaining questions," Working Paper Series WP-08-08, Federal Reserve Bank of Chicago.
  9. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  10. Mizala, Alejandra & Urquiola, Miguel, 2013. "School markets: The impact of information approximating schools' effectiveness," Journal of Development Economics, Elsevier, vol. 103(C), pages 313-335.
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Cited by:
  1. MacLeod, W. Bentley & Urquiola, Miguel, 2012. "Competition and Educational Productivity: Incentives Writ Large," IZA Discussion Papers 7063, Institute for the Study of Labor (IZA).

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