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Thursday, October 10, 2013

How a Rise in U.S. News Rankings Affects Applications

2014 U.S. News Best CollegesMichael Luca (Harvard Business School) & Jonathan Smith (College Board), Salience in Quality Disclosure: Evidence from the U.S. News College Rankings, 22 J. Econ. & Mgmt. Strategy  58 (2013):

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.

(Hat Tip: Robert Morse.)

http://taxprof.typepad.com/taxprof_blog/2013/10/how-rise.html

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