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

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  • Michael Luca
  • Jonathan Smith

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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Suggested Citation

  • Michael Luca & Jonathan Smith, 2013. "Salience in Quality Disclosure: Evidence from the U.S. News College Rankings," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 58-77, March.
  • Handle: RePEc:bla:jemstr:v:22:y:2013:i:1:p:58-77 DOI: jems.12003
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    File URL: http://hdl.handle.net/10.1111/jems.12003
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    References listed on IDEAS

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    1. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, pages 1145-1177.
    2. Bruce Sacerdote, 2001. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 681-704.
    3. Smith Jonathan, 2013. "The Effect of College Applications on Enrollment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(1), pages 151-188, December.
    4. Amy Finkelstein, 2009. "E-ztax: Tax Salience and Tax Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 969-1010.
    5. Stefano DellaVigna & Joshua M. Pollet, 2007. "Demographics and Industry Returns," American Economic Review, American Economic Association, vol. 97(5), pages 1667-1702, December.
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    Cited by:

    1. Makofske, Matthew, 2017. "The Effect of Information Salience on Product Quality: Louisville Restaurant Hygiene and Yelp.com," MPRA Paper 79690, University Library of Munich, Germany.
    2. Jacqmin, Julien & Lefebvre, Mathieu, 2016. "Does sector-specific experience matter? The case of European higher education ministers," Research Policy, Elsevier, vol. 45(5), pages 987-998.
    3. Chevalier, Arnaud & Jia, Xiaoxuan, 2015. "Subject Specific League Tables and Students' Application Decisions," IZA Discussion Papers 8869, Institute for the Study of Labor (IZA).
    4. Goodman, Joshua & Hurwitz, Michael & Smith, Jonathan & Fox, Julia, 2015. "The relationship between siblings’ college choices: Evidence from one million SAT-taking families," Economics of Education Review, Elsevier, vol. 48(C), pages 75-85.
    5. Laurent Bouton, 2011. "Good rankings are bad - Why reliable rankings can hurt consumers," Boston University - Department of Economics - Working Papers Series WP2011-002, Boston University - Department of Economics.
    6. Michael Luca, 2011. "Reviews, Reputation, and Revenue: The Case of Yelp.com," Harvard Business School Working Papers 12-016, Harvard Business School, revised Mar 2016.
    7. Luca, Michael & Smith, Jonathan, 2015. "Strategic disclosure: The case of business school rankings," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 17-25.
    8. Dur, Umut & Ikizler, Devrim, 2016. "Many-to-one matchings without substitutability," Economics Letters, Elsevier, vol. 144(C), pages 123-126.
    9. Caroline Elliott & Kwok Tong Soo, 2012. "The International Market for MBA Qualifications," Working Papers 24284581, Lancaster University Management School, Economics Department.
    10. Gibbons, Stephen & Neumayer, Eric & Perkins, Richard, 2015. "Student satisfaction, league tables and university applications: Evidence from Britain," Economics of Education Review, Elsevier, vol. 48(C), pages 148-164.
    11. Michael Luca & Jonathan Smith, 2013. "Strategic Disclosure: The Case of Business School Rankings," Harvard Business School Working Papers 14-010, Harvard Business School, revised Nov 2014.
    12. Smith, Jonathan & Hurwitz, Michael & Howell, Jessica, 2015. "Screening mechanisms and student responses in the college market," Economics of Education Review, Elsevier, vol. 44(C), pages 17-28.
    13. Gibbons, Stephen & Neumayer, Eric & Perkins, Richard, 2013. "Student satisfaction, league tables and University applications," LSE Research Online Documents on Economics 58540, London School of Economics and Political Science, LSE Library.
    14. 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.
    15. Weijia Dai & Ginger Z. Jin & Jungmin Lee & Michael Luca, 2012. "Optimal Aggregation of Consumer Ratings: An Application to Yelp.com," NBER Working Papers 18567, National Bureau of Economic Research, Inc.
    16. Brent J. Davis, 2016. "Dispersion of female business students across MBA program rankings," Economics Bulletin, AccessEcon, vol. 36(4), pages 2192-2202.
    17. repec:bla:coecpo:v:35:y:2017:i:4:p:630-657 is not listed on IDEAS
    18. Goodman, Joshua & Hurwitz, Michael & Smith, Jonathan & Fox, Julia, 2016. "Reprint of “The relationship between siblings’ college choices: Evidence from one million SAT-taking families”," Economics of Education Review, Elsevier, vol. 51(C), pages 125-135.
    19. repec:eee:jeborg:v:142:y:2017:i:c:p:241-258 is not listed on IDEAS
    20. 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.
    21. Ginger Zhe Jin & Michael Luca & Daniel Martin, 2015. "Is No News (Perceived as) Bad News? An Experimental Investigation of Information Disclosure," NBER Working Papers 21099, National Bureau of Economic Research, Inc.
    22. Nifo, Annamaria & Scalera, Domenico & Vecchione, Gaetano, 2016. "What do you want to be when you grow up? Local institutional quality and the choice of the fields of study in Italy (2004-2007)," MPRA Paper 69907, University Library of Munich, Germany.
    23. Julien Jacqmin & Mathieu Lefebvre, 2017. "Fiscal decentralization and the performance of higher education institutions: the case of Europe," Working Papers of BETA 2017-31, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    24. Schwardmann, Peter & Ispano, Alessandro, 2016. "Competitive pricing and quality disclosure to cursed consumers," Annual Conference 2016 (Augsburg): Demographic Change 145573, Verein für Socialpolitik / German Economic Association.

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