Working Paper: CEPR ID: DP10337
Authors: Thomas Gall; Patrick Legros; Andrew Newman
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.
Keywords: Affirmative Action; Education; Matching; Misallocation; Multidimensional Attributes; Nontransferable Utility; Segregation
JEL Codes: C78; I28; J78
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| free market outcomes (D41) | excessive segregation (J79) |
| excessive segregation (J79) | distorted investment incentives (H32) |
| affirmative action policies (J78) | aggregate investment (E22) |
| affirmative action policies (J78) | income (E25) |
| affirmative action policies (J78) | inequality (D63) |
| affirmative action policies (J78) | overall economic welfare (D69) |
| affirmative action policies (J78) | improved investment incentives (G31) |
| achievement-based affirmative action (J78) | aggregate investment (E22) |
| achievement-based affirmative action (J78) | human capital (J24) |
| underprivileged high achievers (I24) | access to privileged high achievers (I24) |
| access to privileged high achievers (I24) | investment among underprivileged (I24) |
| access to privileged high achievers (I24) | discouragement of investment among privileged (F21) |
| investment among underprivileged (I24) | aggregate welfare (E10) |
| discouragement of investment among privileged (F21) | aggregate welfare (E10) |
| affirmative action policies (J78) | overall output (E23) |