Market Clearing Prices in the Context of College Admissions
In our most recent class, in the context of Market Clearing Prices and Matching, we discussed the ‘buyers and items’ problem. Underlying the problem was a state of competition that arose among the set of buyers. Each buyer was interested in a set of particular items, each to a different extent (i.e., buyer ‘A’ would want ‘item a’ more than ‘item b,’ but item ‘c’ more than items ‘a’ and ‘b’). However, each item could only be assigned to one buyer, and more than one buyer could be interested in a particular item. For example, in the situation described in class, every buyer prioritized ‘item x’ over all other items. Thus erupted a state of conflict in which not all buyers could be satisfied. As it were, it seemed impossible to create a scenario of perfect matching between buyers and items. Such scenarios have the potential to generate immense pressure both on buyers and the sellers wishing to profit off of them.
The description above seems all too relevant given recent experiences in the college admission process. Only 3 years ago I was competing with the vast majority of high school seniors for a spot in an elite academic institution. Just like other high school seniors, I was interested in quite a few colleges, but with various degrees of interest. At the top of my list was Cornell, to which I applied ED. Also high on my list were schools like Princeton, Dartmouth, and Columbia, which I loved upon visiting and was very interested in attending. Lower on my list were schools like CMU, University of Michigan, and University of Maryland, which had incredible reputations, but which I liked less than my top schools upon visiting. At the bottom were schools with more forgiving admission rates, but to which I would rather not go even if given the opportunity. But I wasn’t the only one interested in top schools like the ones I listed above. Tens of thousands of other seniors were interested in those very same admission spots. Just like items in the buyers and items problem, not all students (buyers) could get their top choice college (item).
The solution we proposed in class to buyers and items dilemma was item assignment via market clearing prices. The sellers would pose a cost on each item so as to balance the net price of each. The end-goal of such a methodology was to allow each buyer to feel as though he or she was getting was the item of the best value. The college admissions process seems to have implemented a similar methodology. Colleges with higher admissions rates motivate students to attend via academic scholarships, while lower admission-rate schools (like Cornell) tend not to offer such accommodations (see US News links below). Thus schools which students tend to value more also tend to have higher monetary costs. Another methodology that schools with lower admissions rates have implemented to attract applicants is an ‘Honors College’ system. Such programs can accommodate high caliber students with high academic ambitions — the same students applying and qualified for top schools (see The College Solution source below). Though honors colleges of state schools may not have the same ‘brand recognition’ as, say, Ivy League Universities, they are well regarded for their academic rigor and the success of their graduates. With the methods mentioned above among others, colleges’ net values are regulated, and applicants are satisfied with a wider selection of colleges. With such accommodations in place, a state of perfect matching between applicants and colleges becomes all the more likely.
http://www.thecollegesolution.com/the-pros-and-cons-of-honors-colleges/