The Economic Efficiency of Buying College Admission
I will start by expressing that this post is founded in economic theory, and the ideas expressed are not necessarily empirically founded. Many of these theories suffer from thin or unavailable data and cannot or have not been studied sufficiently to develop meaningful conclusions. Instead, the goal of the post is to think about all of the results that come into play when wealthy families buy their child’s way into an elite private universities.
Earlier this year, the Department of Justice indicted more than 50 people, including 33 parents for participating in schemes to gain admission to the nation’s elite universities. Tactics included cheating on standardized testing and bribing coaches to portray students as top recruits for sports they never played. Details of the scandal have been well reported, and many have rightly expressed outrage. While the economic costs including higher quality students losing their seats to less-deserving students and building mistrust of academic institutions are significant, the benefits to these schemes have been largely overlooked. This post considers both the social costs and benefits of purchasing admission to elite universities.
Costs:
If the total number of admitted students for a specific university is fixed, a more-deserving student loses her spot to the buyer. It is reasonable to assume that the number of students in a single admitted class is fixed in the short run: it takes time to construct the classrooms necessary to educate additional students. Remember, the short run is defined as the time period where inputs that may include classrooms and professors are fixed.
An interesting point to note here is that the cost of the denied student increases with the ability of admissions counselors. If admissions counselors can perfectly rank the ability of high school seniors that apply for admission, than the difference in ability between the student that loses her seat and the student who buys admission is maximized. If we instead think that admissions counselors are limited to a noisy ranking of student ability, than the magnitude of this loss is smaller than in the “perfect ranking” scenario. While before the seat in the admissions class was taken from the most-deserving student, now the seat may be taken form the 23rd most deserving student or the 199th and so on.
A second cost that should not be overlooked is increasing mistrust in colleges and universities and demotivating effects for students that might have pursued these elite colleges. In the extreme where students are perfectly rewarded for academic effort by improved chances of elite college admission, there would be a much larger marginal benefit for each hour spent studying. When additional noise (defined as factors unrelated to student ability) is added to college admissions’ ability to rank the quality of students, the marginal benefit of studying is diminished, resulting in a decrease in the total hours spent studying by all students, and a decrease the overall human capital stock.
Benefits
When capital is transferred from the buyer (donor) to the seller (University), it can improve educational outcomes for other students by buying lab equipment, funding scholarships or attracting high quality professors. Capital from wealthy donors used to construct lecture halls and dormitories helps educate and house a larger number of students. Alternatively, if admission comes via bribery taken by admissions officers, athletic administrators, or even SAT proctors as was the case in many of the latest scandals, none of these positive outcomes occur.
The presence of high income students can also bring classmates greater access to resources that otherwise may not have been available, including prestigious internships and start-up funding. While this does benefit the students at elite colleges, this is a net cost to society if these opportunities are given to students who cannot capitalize on the opportunity to the same degree that would happen if internships were awarded in a competitive process. On the other hand, if capital is being moved from savings accounts of wealthy parents to helping launch start-ups founded by high-achieving students, this may be a net benefit.
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