Priorities vs. Quotas

Affirmative action policies often take two forms: quotas, where a certain number of individuals from given groups are to be admitted; and priority subsidies, where these individuals are given higher scores than an underlying index. Should a policymaker concerned with both match quality and diversity pursue quotas or priority subsidies? We show that under perfect information, the two policies are equivalent. However, this equivalence breaks under imperfect information. We show that when the policymaker is sufficiently risk neutral over the number of minorities to admit, priority subsidies are optimal as minority students are admitted in greater numbers in the states of the world where match quality is highest. Conversely, with high risk aversion, quotas are optimal as they smooth the number of admitted minorities across states of the world without sacrificing match quality.