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Incomplete Information and Costly Signaling in College Admissions

Alfredo Salgado

No 2018-23, Working Papers from Banco de México

Abstract: We analyze a college admissions game with asymmetric information between students and colleges. Students' preferences for colleges depend on the observable quality of the schools. In contrast, colleges' preferences for students depend on the latter's abilities, which are private information. Students and schools are matched via a decentralized mechanism in which students signal their abilities with costly observable signals. A closed-form symmetric separating equilibrium of this game that depends on the supply of and demand for schools seats and on college quality is characterized. In this equilibrium, an increase in the number of students, a reduction in the number of school seats or a drop in the quality of schools reduce the incentive of low-ability students to invest in signaling and increase it for high-ability students.

Keywords: College Admissions; Decentralized Mechanisms; Incomplete Information; Coordination Problems; Costly Signaling (search for similar items in EconPapers)
JEL-codes: D82 C70 C71 C72 C78 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-gth and nep-mic
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