<p>Part 2 of my random thoughts. And since none of my papers on this are finished, you may assume that I'm not a final authority on anything.</p>
<p>Let us take for the sake of argument the claim that schools which accept the bottom 25% of their class (measured in test scores or grades) on non-academic factors do not maximize ex ante likelihood of academic success. Do schools that do so suffer a penalty either now or in the long-run or might they benefit from doing so?</p>
<p>To simplify, lets take legacies as an example. Without loss of generality assume that legacies are admitted on average with half a standard deviation lower qualifications on all other margins than non-legacies. Whether or not this is fair (and I dont really believe it is) what are the possible effects on a school?</p>
<p>If the employment/grad school/after college market is perfectly competitive such admissions will devalue the schools degree to a significant extent. But is this effect large? It may not be, if employers or grad schools dont care about such distinctions, or if the market for grads from top schools is not competitive (Consider that no major research university in the top 20 or so has been founded for nearly a century. Caltech is probably the newest entrant to the club and its original founding was 1891 with its modern founding being 1921).</p>
<p>If the costs to the school are not LARGE, what are the benefits? There are many that might accrue to the school despite the dilution effects. One argument is the pure diversity one students benefit from being surrounded with different types of people. Plausible but unproven. Indeed, if one thinks about this seriously the best schools should be impressive state schools with fat tails and strong honors programs because of high top quality and high diversity. Think of a combination of Harvard plus Stanford and the lower half of the admits to Missouri or Oregon tacked on top. Perhaps Michigan or Berkeley. I dont believe this nor is there any real evidence for it, but that is the end result of the standard claim and argues against the Ivies with a more token bottom tail.</p>
<p>The school might benefit because legacies are more likely to give money back or to become richer due to social connections. Thus, the degree is slightly less meaningful but extra endowment allows schools to buy good things to offset the impurity of the degrees. This is the argument I lean towards but cannot prove. Also getting admits for various social reasons may increase the political clout of a school with obvious benefits.</p>
<p>I have actually spent years trying to think up tests for some of this, but havent come up with any that a good econ journal would care about.</p>
<p>The real test would come if a new university were to be formed with a 20 billion dollar endowment (think Bill Gates U or New China Tech) that makes a big point about being purely meritocratic at all levels from undergrad to professor and has a no fluff core. After buying out the top Nobelists, law profs and high finance B-school kids, it would be interesting to see if such a schools students quickly went up in market value. At the moment however, the top schools are quite oligopolistic. The top 10 or 20 can only be challenged by schools that are already in the top 50.</p>
<p>Whew, long winded
Sorry. Hope this is a useful thought experiment. Obviously not checked for consistency.</p>