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

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  • MacLeod, W. Bentley

    (Princeton 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.

Suggested Citation

  • MacLeod, W. Bentley & Urquiola, Miguel, 2012. "Anti-Lemons: School Reputation, Relative Diversity, and Educational Quality," IZA Discussion Papers 6805, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp6805
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    Cited by:

    1. Hai-Anh H. Dang & F. Halsey Rogers, 2016. "The Decision to Invest in Child Quality over Quantity: Household Size and Household Investment in Education in Vietnam," The World Bank Economic Review, World Bank, vol. 30(1), pages 104-142.
    2. MacLeod, W. Bentley & Urquiola, Miguel, 2012. "Competition and Educational Productivity: Incentives Writ Large," IZA Discussion Papers 7063, Institute of Labor Economics (IZA).
    3. Volker Meier & Ioana Cosmina Schiopu, 2015. "Why Academic Quality in Higher Education Declines," CESifo Working Paper Series 5480, CESifo.
    4. Behrang Kamali-Shahdadi, 2016. "Sorting and Peer Effects," PIER Working Paper Archive 16-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Feb 2016.
    5. Nancy Birdsall, Nora Lustig, Christian Meyer, 2013. "The Strugglers: The New Poor in Latin America?-Working Paper 337," Working Papers 337, Center for Global Development.
    6. Kamali Shahdadi, Behrang, 2021. "The effects of student composition on teachers' effort and students' performance: Implications for tracking, school choice, and affirmative action," Games and Economic Behavior, Elsevier, vol. 130(C), pages 384-399.
    7. Birdsall, Nancy & Lustig, Nora & Meyer, Christian J., 2014. "The Strugglers: The New Poor in Latin America?," World Development, Elsevier, vol. 60(C), pages 132-146.
    8. Alexis Le Chapelain, 2014. "Market for Education and Student Achievement," Sciences Po publications info:hdl:2441/1jgbspo1909, Sciences Po.
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    More about this item

    Keywords

    education; reputation; competition; labor markets;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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