Ironically, selective admission policies reduce the incentive to excel in even better institutions, finds Vidya Mahambare
High-quality education creates opportunities and choices for personal success and growth. It is natural, therefore, for parents to spend a lot of time and energy in pursuit of good schools and colleges for their offspring. With the demand for quality educational institutions far outstripping its supply, the so-called reputed schools manage to get in the driver’s seat by attracting smarter students via strict selection criteria. As a result, only potential high academic achievers are admitted in good quality institutions while lesser mortals end up in the low-quality ones. A clear hierarchy of educational institutions as well as of students, in turn, influences the future pay-off from education.
The lack of transfer of knowledge and skills in low-quality schools dampens the prospects of weak students and acts a catalyst to worsen income inequality. Clearly, this is not a desirable social outcome. In a recent paper, MacLeod and Urquiola* bring out the other rarely discussed problems with an education system so clearly based on stringent selection process. The authors, for example, show that if schools use a selection criterion to choose students, such students have less incentive to study hard as compared with a situation in which no selection criteria are used. Also, the paper comes up with results which may appear counter-intuitive at first glance. For example, the higher the reputation of an institution, the lower is the incentive to enhance its productivity. It is interesting to explore the rationale behind these forceful results.
The ability of an educational establishment to acquire and maintain reputation for quality is key to the demand for its services. However, the perceived quality and reputation of educational institutions are endogeneous — they depend in part on the quality of its buyers (students) themselves. In a sense, educational establishments buy their reputation by being very selective while accepting students. Low-ability students end up in educational institutions which, in turn, are perceived as low-quality establishments. In such an environment, there is no incentive for schools to enter into the market for education to serve low-ability students. This leaves behind a large pool of students with little access to good education.
A related question is: Why do parents and students strive to get into these reputed educational institutions? The answer is straightforward. If the general examination system in a country is a poor measure of students’ ability, the employer sets wages using other observable characteristics, such as the reputation of schools and colleges. Students from reputed educational institutions signal high ability, thereby increasing their chances of finding a better job and a handsome pay package with it. On a negative side, the authors argue that since the reputation of the college transmits a clear signal of students’ quality, admission to such a reputed place lowers students’ incentive to put in an extra effort in learning. Equally, students who are placed in poor quality institutions rationally expect a lower return from academic study since the quality of their school sends a negative signal to employers. These students, therefore, rationally allocate their time to non-academic activities including crime. Even better-performing students from under-performing educational
establishments have no way to signal their skill. Overall, in an education system where the average quality of education is poor, all students face weaker incentives for academic effort than they would in a non-selective setting.
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In addition, an education system so clearly hierarchical in quality is sub-optimal as reputation dilutes schools’ incentive to enhance productivity, since lesser teaching effort is required for high-quality students. In other words, selective schools admit academically bright students, so the fact that their students perform well in terms of examination scores does not necessarily imply that these schools are adding value relative to other schools. In contrast, if schools cannot select students based upon their ability, then the reputation of a school can be enhanced only by improving the learning outcomes of academically diverse group of students. This should be the true test of education quality and reputation.
As we plan reforms in the Indian education system, the real challenge is how to establish such an inclusive education system where no child is left behind, irrespective of their perceived ability — this will help unleash their true potential.
*W Bentley MacLeod and Miguel Urquiola, Anti-Lemons: School reputation and education quality.
NBER Working Paper 15112 http://www.nber.org/papers/w15112
The author is Senior Economist, CRISIL