What's in a Name? Hotelling's Valuation Principle and Business School Namings

Abstract

Close to 50 prominent business schools have been "named" in the 1980s and 1990s, in exchange for sizable financial donations. Recognizing that schools are limited in number and have one name to sell, we suggest that the market for business school names can be regarded as an interesting example of the type of exhaustible resource market examined in Hotelling (1931). When considering an offer, business schools face a trade-off that involves a possible benefit from waiting (the potential to receive a larger gift) against the cost of delay (the opportunity cost of capital). Heterogeneity in the prestige of business schools, however, can affect this tradeoff. We propose that lower ranked schools may have the most to gain from waiting, since they may be able to attract higher naming gifts as the supply of schools with similar or higher prestige diminishes. The empirical results suggest that lower ranked schools are indeed named later, and that business schools wait to accept a name until the annualized rate of increase in offered gifts is around 5%.

JEL Classification: D0,G0