What are the tradeoffs of meritocratic college admissions? On one hand, stronger sorting between students and colleges may produce more human capital on aggregate if higher ability students benefit more from attending higher quality colleges. On the other hand, stronger sorting generates a higher degree of earnings inequality and reduces upward mobility. In this paper, we examine student-college sorting and study aggregate implications of redistributive college admissions policies such as affirmative action. To this end, we develop a model with heterogeneous students and college types that differ on human capital production technology and financial costs/subsidies. We quantify our model using NLSY97 student-level and college transcript data, as well as quasi-experimental evidence on returns to college quality and relevance of information provision. Our quantitative model implies small efficiency losses from redistributive college admissions policies such as affirmative action based on socioeconomic status.
https://doi.org/10.20955/wp.2022.026
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