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Your game theory example incorrectly assumes that the student quality at an elite university is uniformly higher than the student coming from a less prestigious school. It is not. Employers only have to hire a student, not a school, and they can find good students at many schools.
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<p>Uh, the quality doesn't HAVE to be uniformly higher. In fact, that's precisely the point - that the information is incomplete. If everybody had complete information about everybody, then you wouldn't even need a recruiting/hiring process. Companies would always know * exactly * who they want to hire and would just give a job offer to that person. Furthermore, they would always know * exactly * how much to pay them to entice them to come onboard. Furthermore, each student would also know * exactly * where they can get a job, and how much to expect to get paid. That would be the world of perfect information.</p>
<p>But the truth is, to borrow a line from Stiglitz, the world * never * has perfect information, and this is particularly so when you're talking about labor markets. That's why the recruiting process exists. {After all, why bother to recruit if you already know exactly who you want to hire, and people already know exactly who they want to work for?}. And that's why the salary negotiation process exists. Again, why bother to try to negotiate salaries, if everybody knows exactly how much they're worth? </p>
<p>It is of course true that employers hire a particular student, not the school itself. The problem is that you then have to * find * those particular students. Hence, you have to incur search/sorting costs. Those search costs are high if the school's average student quality is not high. Sure, even at a mediocre school, there will be some top-quality students. But how do you know who they are? How can you sort them from the rest of the students who aren't that good? After all, all of the students will * claim * to be good. You can try to use things like GPA, but that invites the problem of some students deliberately taking the easiest possible classes in order to get a top GPA. </p>
<p>If you want to continue the economics analogy, basically, the problem comes down to a case of breaking down information asymmetries. You can accomplish this either through signalling (where the prestige of the school becomes a 'signal' of high quality), or through screening (where the employer itself attempts to sort through all the chaff to find the high-quality wheat). So either the student or the employer has to break the asymmetry. But the point is, * somebody * has to break it. </p>
<p>It is simply more cost-effective for employers to follow the strong signal (i.e. the more prestigious school) than to screen. After all, why bear extra costs when you don't have to? </p>
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A second problem with your response is that it makes no allowance for the huge impact that geography has on recruiting. If Goldman Sachs were located in Los Angeles rather than NYC, they would be hiring huge numbers from USC, UCLA, Pomona, Harvey Mudd, Claremont McKenna, etc. rather than Brown, Dartmouth, Columbia. IMO, only a very few schools have true national recruiting appeal (HYPSM) and even that will vary depending on the industry.
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<p>Uh, first of all GS IS located in Los Angeles - one of their larger branch offices is there. </p>
<p>But more importantly, nobody is denying that geography plays a role. But that seems irrelevant to me. After all, EVERY school obviously has some geographic advantage wherever they are located. UCLA has an advantage in SoCal, just like Harvard has an advantage in Boston. Hence, you can simply modify the question to ask yourself - which school gives you a strong regional advantage in whatever region it is in AND possibly a strong national advantage? Of course that also depends on where you want to work for your career (but then again, very few young people actually know where they want to work for their career). </p>
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Third, your definition of the most elite employers is biased. These are the most elite to you and perhaps to students of those schools you mention. If you asked students in a variety of other cities or regions of the country, the responses would differ. Very few students at U Texas want to go to Wall Street, but there are a lot of very smart and talented students there. Employers in the South and Southwest know that and recruit there heavily.
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<p>First off, many of the major Wall Street banks have large branch offices in the South and Southwest. Goldman Sachs has branch offices in Atlanta, Dallas, and Houston. I'm quite sure that quite a few Southerners work in those offices. McKinsey similarly also has offices in Atlanta, Dallas, and Houston. One of the world's elite private equity firms, Texas Pacific Group, is located, unsurprisingly, in Texas (main HQ is in Fort Worth). I'm quite certain that a lot of the smartest Texans wouldn't mind working there. </p>
<p>The point is this. EVERY region has its own version of elite employers. Those employers often times fill their ranks with locals who went to the top national schools and then wanted to come back home. Take the venture capital industry Silicon Valley as an example. A large chunk of Silicon Valley venture capitalists are Californians who graduated from Harvard Business School (the VC industry was founded and is still largely dominated by HBS, with Stanford GSB a close second). I strongly suspect that if I look many of the principals who work in the Fort Worth office of TPG, I will find many Texans who went to HBS or Wharton. Similarly, who works in the GS Dallas office? Probably a lot of Texans who went to HBS or Wharton. </p>
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Fourth, the elite companies you reference recruit at those schools because of the pre-selection done by the college, the geographic location of those schools and the prevalence of their alumni at those companies. Students from outside of that group of colleges, eg a top student from a public school outside of the Northeast, with varying degrees of difficulty, can also gain positions at those companies.
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<p>Look, nobody is saying that you can't have a strong career if you don't go to a top school. Of course the dichotomy is not that strict. Clearly some people from even a no-name school will achieve great success. But you want to do what you can to increase your odds. Just like wearing a seatbelt doesn't guarantee that I will survive a car accident. But it does increase my odds. Hence, ceteris paribus, why not make the choice that gives you better odds? </p>
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Fifth, the relationship with employers is commonly not as adverse as you paint. Employers understand that their hiring decisions are not a single point, but rather part of a multi-year, perhaps multi-departmental connection. They have an interest in perpetuating a positive relationship while also having the unique position of being able to judge the quality of graduates from a variety of schools.
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<p>I am not saying that the situation always boils down to an adversial test of strength. </p>
<p>But what I am saying is that the general backdrop of any negotiation, under any setting, is intimately related to the options available to the 2 parties in the negotiation. If you have a good alternative option outside of the negotiation, then you have strong negotiation power, because that means that you can just walk out of the negotiation, and the other party knows that. Heck, like I said before, you don't even need to have a good alternative - you just have to have the other party * think * that you have a good alternative. In fact, ideally, you want to have all lots of good alternatives, and the other party to have no good alternatives. That's the point at which you can bargain the hardest. That's strategic negotiating power. </p>
<p>So incorporating what you said into econspeak, the employer wants to extract all of the 'surplus rent' that he possibly can while still leaving you with some in order to create that positive long-term relationship that you spoke of. True. But that still means that at the end of the day, you are still subject to the whims of how much surplus the employer wants to leave you. However, if you have a stronger negotiation position, then you can negotiate to get more of that surplus rent. Obviously there is some point at which you would be asking for more than your productivity is worth, and hence, the employer would not want to make a deal. But there is still a large range of surplus that can be negotiated over. Going to a stronger school gives you better negotiating power with which you can grab more of that surplus. </p>
<p>And that's what I've been saying all along. Employers should NOT be happy with any particular school, because if they're happy, then that means that they're getting a great financial deal (hence, deriving a lot of surplus rent). You don't want them to be getting that surplus rent, you want the STUDENTS to get it. Employers SHOULD walk away unhappy (as long as they keep coming back). Like I said, recruiters at Harvard Business School are notoriously unhappy because they constantly complain that the students ask for "too much". What that really means is that the students there bargain very hard to get the best possible salaries and positions they can get, because they know they have the negotiating power to do it. The employers obviously don't like this, but who cares? * They keep coming back anyway *. If they really didn't like it, they wouldn't come back. </p>
<p>The bottom line is this. Employer satisfation is a terrible way to measure a school. Terrible. Employers are looking for bargains. Schools should not be providing bargains to these employers.</p>