Supply and Demand of College Admissions
Luo, James, Yale Economic Review
IN RECENT YEARS, college admissions have become a hot topic in the national news, and for good reason. Competition intensifies each year as increasingly qualified and ambitious high school seniors vie for a limited number of spots. Those familiar with the process know the anxiety involved. Furthermore, since many applicants receive several offers of admission, colleges themselves are uncertain about the percentage of students who will eventually matriculate. In their 2009 paper, "A Supply and Demand Model of the College Admissions Problem", Professors Hector Chade of Arizona State University, Oregon7 Lewis of Harvard, and Lones Smith of the University of Michigan at Ann Arbor, have rephrased the complicated relationship between applicants and colleges in terms of an economic allocation problem. They recognized the uncertainty between both involved parties and sought to explain it systematically.
The researchers identified two important qualities of college admissions: applications are costly to the applicant and these admissions are noisily evaluated noise being uncertainty, misinformation, or even hype in a marketplace). From these initial observations, the researchers developed a supply and demand model where the classical "price" variable is replaced by "admissions standards." These standards are tacitly recognized in college admissions as grades, test scores, and extracurricular activities. When this metric was compared against college vacancies open to incoming freshmen, the researchers encountered some surprising conclusions.
The researchers applied the model to a simplified case involving only two hypothetical colleges. In equilibrium, optimized sorting suggests that better students will enroll in the better college, lesser students will enroll in the lesser college, and that the worst students will not enroll in either college. The model showed that this was not necessarily the case. Because the college assignment problem is a supply and demand situation, a college's standards of admission, the "price" in the usual sense, depend on that college's capacity. …