Higher Education: Reputational Effects, Distorted Signaling and Propitious Selection

In the paper the authors attempt to underpin the hypothesis that under certain conditions a propitious selection may take place on the higher education market. It is a phenomenon when brand universities automatically reproduce their positive reputation without improving the quality of teaching due to influx of talented entrants. The authors apply econometric modelling and regression analysis based on survey of first-year students from Moscow to demonstrate that graduates with high USE marks really prefer to choose among brand universities; moreover, they appreciate a possibility to obtain a prestigious diploma even more than that of acquiring a particular profession. However, entrants do not possess full information about the quality of teaching in a particular university. The analysis presented in the paper shows that university rankings do not contribute to overcoming of this information asymmetry, since they transmit distorted signals caused by the methodology of ranking. The rankings, first of all, accentuate academic activity of teachers rather than educational process and interaction with students. For this reason, higher schools often adopt such a strategy to meet the ranking criteria as much as possible; they also tend to improve namely these indicators disregarding the other to become a leader. As a result, brand universities may surpass ordinary universities not due to rendering educational services of higher quality but due to selection of best entrants and peer-effects. These factors allow them to have excellent graduates, thus maintain positive reputation in employers’ opinion and simultaneously raise the brand value by advancing in a ranking