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Causes and Consequences of Student-College Mismatch

College admissions are highly meritocratic in the U.S. today. It is not the case in many other countries. What is the tradeoff? On one hand, meritocracy produces more human capital overall if higher ability students learn more in college and if they learn more in higher quality colleges. This leads to a higher overall level of earnings (i.e. greater efficiency, loosely speaking). On the other hand, more meritocracy generates a higher degree of earnings inequality. In this paper, we quantify this efficiency-equality tradeoff. Our results suggest small efficiency losses/gains from student reassignment across colleges, suggesting it as an effective policy for fighting inequality and/or altering intergenerational mobility.

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https://doi.org/10.20955/wp.2022.026