The medium-run efficiency consequences of unfair school matching: Evidence from Chinese college admissions

Abstract In this paper, we empirically examine how unfair (i.e. negatively assortive) matching between colleges and students affects the medium-run allocative efficiency of the college admissions system, as measured by total wage levels among college graduates. Using data from China College Student Survey, we find that unfair matching tends to increase the total wage level. The implication is that student ability and school quality tend to substitute for, rather than complement each other. We also find evidence that unfair matching leads to higher total human capital investment in English skills, leadership ability, and double majors, but not to higher GPAs. We interpret this finding as an indication that unfair matching, by increasing the inequality of ability within a college, encourages diversified human capital investment instead of monotonic competition. These findings also indicate possible channels of improvement in allocative efficiency.