Anti-Lemons: School Reputation, Relative Diversity, and Educational Quality

38 Pages Posted: 6 Oct 2012

See all articles by W. Bentley MacLeod

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Miguel S. Urquiola

Columbia University

Abstract

Friedman (1962) observed that the ability of firms to acquire and maintain reputations for quality is a key ingredient for the efficient provision of goods and services in a market economy. This paper explores the implications of school reputation for skill acquisition and labor market outcomes in an otherwise competitive market. We find that reputation effects can explain several puzzling findings in the economics of education, including the fact that competition can, but does not always, improve skill acquisition. This result follows from an anti-lemons effect (in contrast to Akerlof's lemons effect) that arises when schools can enhance their reputation by positively selecting their students. This leads to excess demand for "high quality" selective schools that drive out non-selective schools. This in turn reduces "relative diversity", a measure of ability dispersion in a school, leading to lower skill acquisition.

Keywords: education, reputation, competition, labor markets

JEL Classification: H2, H4, I21, J31

Suggested Citation

MacLeod, William Bentley and Urquiola, Miguel S., Anti-Lemons: School Reputation, Relative Diversity, and Educational Quality. IZA Discussion Paper No. 6805. Available at SSRN: https://ssrn.com/abstract=2157947

William Bentley MacLeod (Contact Author)

Columbia University - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Miguel S. Urquiola

Columbia University ( email )

420 W. 118th Street
New York, NY 10027
United States

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