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Title: College Diversity and Investment Incentives

Author(s): Thomas Gall, Patrick Legros and Andrew Newman

Publication Date: January 2015

Keyword(s): affirmative action, education, matching, misallocation, multidimensional attributes, nontransferable utility and segregation

Programme Area(s): Industrial Organization

Abstract: This paper studies the aggregate economic effects of diversity policies such as affirmative action in college admission. If agents are constrained in the side payments they can make, the free market allocation displays excessive segregation relative to the first-best. Affirmative action policies can restore diversity within colleges but also affect incentives to invest in pre-college scholastic achievement. Affirmative action policies that are achievement-based can increase aggregate investment and income, reduce inequality, and increase aggregate welfare relative to the free market outcome. They may also be more effective than decentralized policies such as cross-subsidization of students by colleges.

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Bibliographic Reference

Gall, T, Legros, P and Newman, A. 2015. 'College Diversity and Investment Incentives'. London, Centre for Economic Policy Research. https://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10337