Search the Site

Episode Transcript

In 2019, the Department of Justice revealed the findings of an F.B.I. investigation with the code name Operation Varsity Blues.

Andrew LELLING: We’re here today to announce charges in the largest colleges-admissions scam ever prosecuted by the Department of Justice.

The scam involved wealthy parents funneling bribes through a college consultant to get their children into schools where they didn’t belong. There were fake test scores, fake athletic credentials, and cash payments to college coaches. The actress Lori Loughlin and her fashion-designer husband Mossimo Giannulli paid half a million dollars to get their two daughters into the University of Southern California as recruits to the highly ranked U.S.C. crew team even though, as the New York Times put it, “neither girl participated in the sport.” An applicant to Tulane University was described as “an African-American tennis whiz” even though she didn’t play competitive tennis — and was white. Among the other universities involved were Yale, Stanford, Georgetown — some of the most elite schools in America. All told, 57 people were charged as a result of Operation Varsity Blues, including coaches, exam administrators and of course parents.

LELLING: These parents are a catalog of wealth and privilege. They include, for example: C.E.O.s of private and public companies; successful securities and real estate investors; two well-known actresses; a famous fashion designer; and the co-chairman of a global law firm. 

A couple parents even went to prison for a bit, including Loughlin and the other well-known actress, Felicity Huffman. This became a huge story, and it led to many questions: who knew what at these universities? How could something like this happen at such esteemed institutions? And really, you can just pretend to row crew to get into college? But there was one question that answered itself: why would the parents do this? The answer is that slots at these top schools are incredibly scarce — and incredibly valuable. Getting an acceptance letter from them is like that scene from Willy Wonka:

GRANDPA JOE: Because I’ve got a golden ticket! I’ve got a golden ticket!

As we learned in the first part of this special series on college, there are some 4,000 institutions of higher learning in the U.S. And they fall into two distinct categories.

Morty SCHAPIRO: The vast majority of those 4,000 are effectively open enrollment. 

Open enrollment meaning you have a good chance of getting in as long as you have a high-school diploma. That’s one model.

Ruth SIMMONS: The other model is a more competitive model.

This second, competitive model includes all the schools I just mentioned from the scam — Stanford and Yale and Georgetown and U.S.C. — as well as the rest of the Ivy League schools and the so-called Ivy-pluses like Stanford, and a few dozen other elite private schools, and some top-ranked public schools like the University of California-Berkeley and the University of Michigan. And this second model, this competitive model, is winning. Over the past few years, and aggravated by the pandemic, less-selective universities and community colleges have seen enrollment drop. The elite schools, meanwhile, have set new records for applications: Harvard was up 42 percent last year. These elite schools typically charge tuition of $40, $50, even $60,000 a year. Even so, they admit only a tiny share of the students who apply, and these tiny admittance numbers become part of their appeal. They could probably double the tuition and still have no trouble filling up. That’s what a typical firm would do in a typical market, but you can see why that wouldn’t be a good look for a university. If, however, you did think about universities the way we think about firms — the way an economist might think about them — there is another solution. With so much demand, why not just increase the supply? Today on Freakonomics Radio: We’ll tell you why elite universities haven’t grown very much — and the answer has to do with what they’re really selling:

Miguel URQUIOLA: Reputation matters.

Why do students want these elite schools?

MALE STUDENT: The brand value, for sure. 

But can an elite degree really change your life?

GRANDPA JOE AND CHARLIE: I’ve got a golden ticket, I’ve got a golden chance to make my way. And with a golden ticket, it’s a golden day. 

It’s part two of our special series “Freakonomics Radio Goes Back to School” and it starts right now.

 *      *      *

Let’s begin with a look at the most selective of the selective universities.

Peter BLAIR: Hi, my name is Peter Blair. I’m an economist at Harvard University. 

Harvard, the first American college, was founded in 1636 and today admits about 2,000 new undergraduates each year. How many people want those 2,000 spots? Last year, Harvard had more than 57,000 applicants. Peter Blair, by the way, didn’t start out as an economist.

BLAIR: I was a physicist, also at Harvard University. I studied theoretical particle physics. 

But after getting his Master’s in physics, Blair switched fields and got his Ph.D. in applied economics from the University of Pennsylvania. His focus is on labor markets, and the economics of education. One fundamental belief of his profession is that going to college is among the best things you can do to improve your life — financially and otherwise. Blair certainly believes that, but when he talks about education, he doesn’t sound quite like an economist.

BLAIR: One of the best explanations of the purpose of education is the Reverend Dr. Martin Luther King’s statement that education is preparation for citizenship. And citizenship has to do with voting, citizenship has to do with contributing to your own economic well-being, as well as contributing to the economic well-being of the broader society.

Blair grew up in the Bahamas and moved to the States to attend Duke University — another highly selective school. Last year, Duke admitted fewer than 5 percent of its applicants. Until Blair got to Duke, he wasn’t very familiar with the American model of selective colleges.

BLAIR: At that time in the Bahamas, we did not have any four-year institutions. I finished all of my physics courses at the College of the Bahamas in my first year, so I left to get a college education. When I went to Duke University, I realized that there were some people who had been planning since ninth grade to get into Duke. There are institutions that are perceived as being more elite than others, and that this matters for how people see you. I did not know that before I came to the U.S.

Stephen DUBNER: Really?

BLAIR: I did not.

DUBNER: But you knew the difference between Harvard and — I don’t want to insult someone by naming them — but, you know, “fill-in-the-blank County Community College.” That was obvious. So, what do you mean you didn’t recognize that element of the elite perception? 

BLAIR: I think the conception of Harvard was that it was the first and an incredibly distinguished university, but I didn’t fully — there was a sense in which just even going to college itself is a privilege.

Over the past several decades, attending college has become something less of a privilege in the U.S. and more a way of life, as an ever-larger share of the population signed up. But that’s been changing. Over the past ten years or so, overall enrollment has slipped; also, with more labor shortages, some jobs that used to require a college degree no longer do. As Bloomberg Businessweek recently reported, the state of Maryland “just scrapped college-degree requirements for thousands of government jobs” and business “giants” like I.B.M. “have been taking similar steps.” Still, if you look at the U.S. today versus, say, 50 years ago …

BLAIR: Over the past 50 years, the number of students going to school in the U.S. has increased almost twofold.

Within that macro number, however, Peter Blair spotted a micro curiosity.

BLAIR: When we look at this expansion of colleges to absorb this increase in demand, most schools have been expanding except schools at the very top.

“The very top” meaning what, exactly?

BLAIR: Schools like the Ivy League schools — Harvard, Yale, Princeton. The Ivy-plus schools — Stanford, Chicago, M.I.T. These schools that are in the top two percent of the SAT score distribution. And that’s a puzzle. Why is it that these schools are the ones that haven’t expanded even though we see more students going to school? On average, schools in the top 2 percent have grown by about 7 percent from 1990 to about 2015.

DUBNER: And that, compared to a growth rate of non-elites, is what?

BLAIR: It’s about 60 percent. 

DUBNER: Can you think of a parallel from another industry? In other words, let’s say it’s the automobile industry or some other industry where somebody is winning. Somebody is considered the best; wouldn’t they want to expand more?

BLAIR: Yes. In most markets, what you want to do is get more market share. Even companies like Apple are engaged in this process. What’s surprising about this is that for most of their lifetime, elite colleges have been the largest colleges. So, Harvard, Yale — at one point they were the first, they were the only, and they were the largest. In fact, between 1940 to 1980, Stanford and Princeton expanded by quite a bit. This puzzle really is a modern phenomenon. Elite colleges have historically expanded with the population.

It was in the 1970s and ’80s that the elite schools stopped expanding. This happened even as demand was rising, and as less-elite schools were growing. Back then, even the most-selective schools weren’t that selective. As recently as the 1990s, in fact, admissions rates were much higher than today.

BLAIR: It was close to 40 to 50 percent. So, it was basically a coin flip to get into the University of Chicago or the University of Pennsylvania. And these are phenomenal schools. The admissions rate at Columbia was around about 30 percent, at Stanford, and Harvard, it was hovering around about 20 percent. When you look at these admissions rates now, the University of Chicago, the University of Pennsylvania, it’s closer to 8 or 9 percent. When you look at Harvard and Stanford, it’s closer to about 4 or 5 percent.

DUBNER: How much are the lower admission rates driven by the fact that most students apply these days to many more schools than they used to? 

BLAIR: It’s not just driven by the fact that students are applying to more schools. Students applying to more schools itself is a function of the fact that elite universities have not expanded. It’s really about the kinds of competitive dynamics that get fostered over time, when the number of spaces at these elite institutions is capped relatively stable or stagnant over time. 

So why did only these elite institutions stop growing? To solve this puzzle, Peter Blair and his fellow economist Kent Smetters wrote a research paper called “Why Don’t Elite Colleges Expand Supply?” It entertains a variety of potential theories.

BLAIR: So, one theory could be, universities want to keep quality the same, the quality of the students. That doesn’t seem to be the case. The students that are getting into these universities now are even more qualified than when I was going to college. 

Okay, so student quality doesn’t seem to explain it. What about the quality of faculty? Maybe there just aren’t enough qualified Ph.D.s to teach a bigger pool of elite students?

BLAIR: It’s not that. We see that there are more people graduating with Ph.Ds. Their C.V.s look closer and closer to folks who are on the tenure track. 

Okay, maybe these older schools just don’t have enough physical space to put a lot of new students.

BLAIR: Well, Duke has lots of space. Stanford has lots of space. Even Columbia can build vertically.

What about money?

BLAIR: The amount of resources that universities have has increased tremendously because of gifts, increased returns on endowments. 

This is a very true fact. Most elite schools have massive endowments. Harvard’s is the largest, at around $52 billion; Yale has $42 billion, Stanford: $38 billion.

BLAIR: You can go through a lot of the obvious explanations, and they don’t seem to check out with the data. 

So, what other explanation could there be? As we noted earlier, in a normal market, firms tend to increase their supply to meet a rise in demand. But there is one market where that doesn’t happen.

BLAIR: The one market where you see this not happening as much is in the market for luxury goods. Take, for example, Hermes.

That’s Hermes, the French luxury designer.

BLAIR: A part of the appeal is the fact that the supply is restricted, that you say, I have an Hermes purse or an Hermes scarf. 

A double-ply Mulberry silk scarf, that is.

BLAIR: So this is one industry where you see that scarcity itself confers value on the object.

In other words, if anyone could buy that Hermes scarf, it would just be a scarf, not a statement. An Hermes scarf says something about you. It says you are the kind of person who can afford a much better caliber of scarf than most people who wear scarves. Peter Blair began to wonder if colleges might be sending the same signal. Could this explain why the elite schools had essentially frozen their growth? He and Smetters began to create an economic model to explore this question. The model included three steps. First, students choose which colleges to apply to; then, colleges decide which students to admit; and finally, students pick which college they are going to attend. As you can imagine, there are a multitude of variables that affect each step: the total number of applicants, the academic and extracurricular quality of those applicants, as well as net tuition costs and other factors. And there was one special variable they included in the analysis, the same one that applies to luxury goods.

BLAIR: Universities are competing on what we call prestige, which is a relative measure of: how selective is my university relative to its peer institutions? 

Now Blair and Smetters took their model and fed into it real-world application and matriculation data from Harvard, Yale, Princeton, and Stanford. They did this twice — first with the “prestige” variable turned on.

BLAIR: We find that when we calibrate the model with prestige on, we’re able to fit the patterns in the data, which show that admissions rates have been declining at elite institutions and also the average SAT scores have been going up both for applicants and also for matriculants. So that’s with prestige on, the model fits.

In other words, their model successfully re-created the reality. Then they turned off the prestige variable. What’d they find now?

BLAIR: What we find is that in the absence of prestige, admissions rates would go up, the number of applicants would go up, the number of matriculants would also go up. The average test scores would go down slightly. Also, the number of applications per slot would in fact decrease. So competition would soften at elite institutions. 

In other words, if elite schools weren’t competing to position themselves as super-exclusive luxury brands, they’d admit more people, and it would be easier to get in. You could imagine this would make a lot of people happy. But who might not like it? Just guessing here, but how about the elite colleges’ administrators and faculty and alumni and current students, all of whom really like the idea that their school is so exclusive. How did it come to this? How did a college education become so much like a double-ply Mulberry silk scarf? Here’s one fact to consider. In 1983, right around the time elite colleges stopped expanding and started becoming more selective, U.S. News & World Report issued its first ranking of colleges and universities. If you have ever been within a mile of a college applicant or their family, you know the U.S. News ranking system has become an obsession. So did the U.S. News rankings cause selective schools to become even more selective?

BLAIR: We don’t argue that that’s causal. What we do in the paper is we show that in a model in which universities care about prestige, which itself is a relative comparison, that you can get the kind of dynamics that we see in the data. 

DUBNER: In my experience with college and university presidents and admissions officers, there is a strange something going on. We hear a lot of public gnashing of teeth about, “Oh my goodness, we so wish that we could share our amazing university experience with more people, and it’s such a tragedy that our admissions rates are inevitably so low.” That’s what you hear publicly. But I have a sense that just behind closed doors, those universities revel in those absurdly low numbers. Can you talk about how meaningful that number is to the universities themselves?

BLAIR: I would broaden it and say that as a society, we celebrate exclusivity. And even for the parents who are preparing their kids by investing in test prep, investing in coaching. When you think about the alumni of universities, too, who are looking at the increase in selectivity of their colleges and looking at it as a mark of pride when they say, “Oh, I would not have gotten into XYZ School today, but my children are going to get into it.” I think there’s a deeper human instinct that’s not just sitting with university administrators and presidents, but it’s sitting with parents, it’s sitting with students, it’s sitting with alumni. 

All this human instinct was there to see in Peter Blair’s model and his research paper.

SCHAPIRO: It’s an elegant paper. I love the math. I went through the model. I thought it was really good. 

That’s Morty Schapiro, the president of Northwestern University and another economist who studies education. We met him in last week’s episode. Northwestern is itself an elite school, and Schapiro was previously president of Williams, the top-ranked liberal-arts college in the U.S. But he says that in a country with 4,000 institutes of higher learning, all the attention paid to a handful of elite schools is misplaced.

SCHAPIRO: Of the 4,000 colleges and universities, it’s only about 150 of them that are really the global name brands. And a small percentage of those, 39 of them, are the highly selective, very heavily resourced privates. And get this — I don’t know if you knew this number — they enroll 170,000 undergrads. So, 1 percent of the undergraduate population of 17 million go to one of these name-brand universities. And yet so much of the research is on that, “Why don’t they expand, why don’t they…” — on and on and on.

BLAIR: I want to give you a different example, which is Australia.

Peter Blair again.

BLAIR: Australia has a group of eight universities, they’re called the Group of Eight, which is the equivalent of the Ivy League in the United States. You have eight universities in Australia, their very best, that educate a quarter. And when you look at the doctors and the dentists in Australia, those universities educate half.

Does the Australia model mean the elite American schools should expand?

SCHAPIRO: Let’s say we went from 170,000 undergrads to 250,000 undergrads, roughly. The world would change? I mean, 80,000 more out of 17 million? Will you give me a break!

DUBNER: Let me ask you this. It seems that some prestige schools do find expansion attractive when it’s in a place where the money just flows, let’s say the Middle East or some parts of Asia. I once visited a friend who was teaching at one of these campuses. He’s a writer, lit teacher, and the literary journal for his class was actually subject to censorship from the government. So, I’m thinking at this point, well, that feels like a cash grab. That feels like an institution that says, “You know what? I could make, let’s say, 1,000 slots available in the U.S. for whatever population I choose, but instead, I’m going to do this.” What’s your take on that? 

SCHAPIRO: Well, I’ve never been a fan. I think it depreciates the value of your brand. When I was president of Williams, because we were ranked No. 1, there was a delegation from Singapore came over, and they said, “We want to create a liberal arts college.” And I said, “You’re talking to the wrong person.” Because when I was at University of Southern California, before that, as a dean and a vice president, we closed some of our international campuses and programs because it didn’t have our faculty, and I think we were giving degrees to people that conflated with the domestic versions, and just not a very good imitation of it. So I said, “Boy, did you talk to the wrong people.” And I said, “Go to one of the other ones.” And they had a deal with David Oxtoby, one of the great presidents — he was president of Pomona at the time — and they cut a deal that they were going to open up a liberal arts college. And then I don’t think the faculty liked it, or maybe the deal wasn’t what they promised, and David and the gang pulled the plug on it. And then they went to Yale. 

DUBNER: And Yale did it, right? For a while. 

SCHAPIRO: They did it for a while. Now it’s gone. So, I’m not a fan of that. If you have a product that’s a prestige product or people expect a certain level of quality, and then you have a knockoff version of it that’s nowhere as good, you lose at the end. 

Schapiro may not like the idea, but it’s happening. New York University has opened outposts in Abu Dhabi and Shanghai. And several elite schools have opened campuses in Qatar, including Georgetown, Carnegie Mellon and Morty Schapiro’s own Northwestern. That campus, which specializes in media and journalism, opened in 2008, before Schapiro came to Northwestern; he plans to retire later this year, so the Qatar campus will outlast him. I didn’t know about the Qatar branch of Northwestern when we interviewed Schapiro. We later asked for a comment, and he emailed back to say, “I’m a big fan of what we do in Qatar … and we would never have renewed the program if I had any doubts. Usually, remote campuses struggle to replicate the excellence at the ‘home’ campus. But not this one!” It may not surprise you that elite schools would open outposts in some of the richest places in the world; these universities are, after all, global brands, and there are rich customers all over the world. On the other hand, a university is meant to represent something radically different from a global brand like Hermes or Apple. Universities are devoted to research and the spread of knowledge, so why not open a few satellite campuses in some deserving low-income countries? Yes, that might eat into their endowments a bit, but would it perhaps be more successful in boosting the prestige of these schools, rather than skimming some money from oil kingdoms? Coming up: a potential solution to America’s elite-university problem.

BLAIR: So, this would be very similar to what’s happening with the Paris Accords around climate change.

*      *      *

When economists analyze something like the U.S. university system, they tend to look at it as a market — even though there are some obvious differences between going to college and buying a new laptop, or deciding where to eat dinner. One of the differences is that elite universities work more like luxury goods than normal goods. Which means that scarcity and prestige play a big part. But there’s another reason that college is a strange product.

URQUIOLA: If you consume a college education, you tend to basically consume it once in your life.

Miguel Urquiola is an economist at Columbia University in New York City; he studies the education market.

URQUIOLA: You go once and then forever more, you will go around with a sticker that says “Johns Hopkins” on your forehead. So, when you invest you’re very careful when you choose.

How much does reputation matter to college students? That’s a hard question to answer empirically. To get some anecdotal answers, we went up to Urquiola’s school, Columbia, which is currently tied for second in the U.S. News & World Report ranking of best American universities. We asked students what they valued more: the Ivy League education they were getting, or the Ivy League brand attached to it. 

FEMALE STUDENT: It’s a very difficult question.

We did hear a fair amount of pro-education sentiment.

FEMALE STUDENT: The education here is obviously incredible. I don’t always love Columbia’s brand. I’m more proud of my education than the fact that I’m at Columbia.

MALE STUDENT: I don’t, like, wake up every day and say, “Oh, I’m so excited to engage in this prestigious experience.” I say, “I’m so excited to learn about this particular thing.” So probably education.

FEMALE STUDENT: I think that Columbia does a good job of collecting people who care about knowing things and who care about asking questions, and to be in that kind of environment really does push you. 

But the vast majority of the students we spoke with had a different answer about what mattered most.

MALE STUDENT: The brand value, for sure.

FEMALE STUDENT: You could get the same education, at a not Ivy League school and a not top 50 school.

MALE STUDENT: Especially with like with classes being online, it maybe leans slightly more towards the brand value than the education.

FEMALE STUDENT: The reason why they can justify charging $80K a year is probably the brand name. Whether it’s worth it or not, I don’t know.

MALE STUDENT: I mean, you could get a very good education at most schools in the country. Anyone will give you a very good degree and you’ll learn a bunch, but having that brand name is what makes it worth going to a school like this.

MALE STUDENT: It’s pretty much just like the diploma, to be able to say you went to an Ivy League school.

FEMALE STUDENT: I think you can get an amazing education anywhere. Obviously it’s top-notch here, but it’s the connections you have after college, too.

MALE STUDENT: When you apply to a place, and you have that brand on the top of your C.V. and the network that comes on top of it. There’s a reason why a lot of people can’t get into the school, and it’s so prestigious.

This may be a good time to talk about what you actually get when you get a college education. There is of course the acquisition of knowledge — although many top universities will help you acquire that knowledge for free, in the form of online courses. If knowledge acquisition was all that college offered, why bother to pay a few hundred thousand dollars for a four-year degree? Another thing you can get at college is a lifelong network — friends, business contacts, maybe a romantic partner. You’re also taking advantage of what are called peer effects, surrounding yourself with other smart, ambitious, disciplined people. And there’s one more thing you’re getting: status. As we mentioned in the first episode of this series, fewer than 40 percent of U.S. adults have a bachelor’s degree; and if you have a degree from a well-regarded university, that puts you in even more rarefied air. The economist Bryan Caplan, in a book called The Case Against Education, argues that one major function of a college degree is to act as a social signal, a way to tell the world that you are worth hiring, worth being friends with, perhaps worth being intimidated by. In Caplan’s view, this has driven a kind of credential inflation, where more and more education is required to have a good career. One study has found that from the 1970s through the 1990s, the average level of education within 500 occupational categories rose by 1.2 years, even though most of the jobs didn’t change much. You can also see a link with the rise in credentialism generally: in the 1950s, only around 5 percent of U.S. workers needed an occupational license in their chosen field; today it’s about 25 percent. Of course, the world is vastly different than it was the 1950s, and a lot of our progress has plainly been driven by education generally and university research in particular. Still, the Caplan argument says that a college degree is a bit like a peacock’s plumage: something you spend a lot of resources on primarily to elevate your status among the lesser-plumed. How is this signaling-theory argument received by a president of an elite university?

SCHAPIRO: I think that’s a gross mischaracterization of American higher education.

That’s Morty Schapiro again, from Northwestern.

SCHAPIRO: It’s just not the reality. I mean, if it were only a signaling thing or a screening thing, somebody would invent a less expensive screen or signal. That’s the market. Trust me, we know as economists that would happen. I’ve done some studies of peer effects and a number of my coauthors have done some really good ones. You are deeply affected by the random assignment of your first-year roommate, and we can show that in terms of your ultimate G.P.A., but it also has impacts in your political views, your social views. It’s not just about getting connections so you can get a job at Goldman or McKinsey. A lot of the human capital accumulation takes place outside the classroom. It’s study groups and things like that.

So Schapiro is arguing that the value of the college experience is real, large, and variegated. And there is a lot of economic research to back this up. But let’s connect this to the prestige idea. If, as Schapiro says, the college experience produces all these benefits, does a prestigious college produce more of these benefits? This is a hard question to answer. The students who are admitted to the most prestigious colleges are necessarily smart and motivated; so if they do well later in life, how much of that success was due to their college experience versus their underlying smarts and motivation? Can we find someone to talk about that?

Amalia MILLER: Sure, I’m happy to talk about it.

That is Amalia Miller.

MILLER: And I’m a professor of economics at the University of Virginia.

Miller told us about a research paper by Stacy Berg Dale and Alan Krueger, called “Estimating the Payoff to Attending a More Selective College.”

MILLER: This is a paper that was published in 2002. Basically, it tries to measure the relationship between attending a more selective college and later life earnings. They tried to find a way to get beyond correlations. So, not just comparing people who went to more selective schools and people who went to less selective schools.

They were able to do this because they had data on where people applied to college, where they’d been accepted and rejected, and which college they attended; they also had data from their incomes later in life.

MILLER: You might imagine Penn State and Yale. And so, you could have someone who applied to both those schools and got into both. And one of them goes to Yale, and the other goes to Penn State. And let’s look at their earnings. We’re not going to compare the student who went to Penn State and didn’t apply to Yale. And we’re not going to compare a student who went to Penn State, applied to Yale, and got rejected from Yale. We’re going to compare students who applied to and got into the same schools, but then ended up attending other schools.

Their analysis included more than 14,000 students from 30 colleges.

MILLER: What they find in the data is they first find the raw correlation that fits with expectations and perceptions, which is that the students who attend more selective schools do have higher wages and better labor-market outcomes. That’s the raw correlation.

Okay, that’s what you might expect: the graduates who attended better schools earned more money. But again, was the school responsible for that? Did the student who got into both Penn State and Yale and went to Yale do better than if they’d gone to Penn State instead?

MILLER: Their result is that there was on average, no benefits in terms of higher earnings to attending a more elite school or a more selective school than a less selective school.

In other words, once you hold everything else equal, the more elite schools did not boost earnings. Although we should note — that’s on average, as Miller said. The researchers did find that elite schools boosted certain subgroups.

MILLER: They actually have a follow-on paper that uses more data. And they do find potentially a wage benefit for people from more economically disadvantaged groups, and minority students.

Morty Schapiro has also seen this effect.

SCHAPIRO: The return to selectivity is much higher for people of color and particularly for Black men and for first-generation students.

And Miguel Urquiola again.

URQUIOLA: For certain types of students going to a school like Harvard gets you into the right clubs. My guess is that parents believe it’s very valuable and that parents may be looking at a variety of outcomes.

DUBNER: Let’s talk about professors for a moment. So, if elite universities are often optimized to produce really great academic research, to what degree is that at odds with also producing really good instruction for the paying students and the paying parents? Because it strikes me that the best researchers often, at least the ones I know, don’t have that much interest in teaching, and that’s exactly what the students and the parents want.

URQUIOLA: Yeah, I think that there could definitely be a tradeoff in this regard. For example, it could very well be that some economics instructors at a place like City College or Rutgers are better than some economics instructors at Princeton. And this could be in part because the people at Princeton are selected on their research output, and they may have less energy devoted to their teaching.

DUBNER: Let’s just pluck one out of history. How was Sir Isaac Newton as a professor?

URQUIOLA: There’s anecdotal evidence that he wasn’t very good. Many people were sleeping in the class. Anyone who’s been to school, to university particularly, knows of cases where someone who’s very brilliant on the research front is just disorganized or boring. I’ve had the chance to have an instruction from Nobel winners who will go nameless.

DUBNER: No! Not nameless. We always name them here.

URQUIOLA: Who seemed to be particularly disorganized.

Morty Schapiro, wearing his economist hat and not his college-president hat, has analyzed the impact of faculty skill. He wanted to compare how students did if they had an intro course taught by a tenured or tenure-track professor versus a non-tenure track professor, including an adjunct. Adjuncts are essentially freelancers who get paid much less than tenure-track professors and who are leaned on extensively by even elite colleges to teach a lot of classes. Schapiro found that students who took intro courses with non-tenure track professors did better in more advanced courses than if they’d had a tenured or tenure-track professor for the intro course. One reason tenured professors may not be as good at teaching is that, as we mentioned earlier, the top schools may value research over classroom instruction. Still, if you’re the student or the parent of a student at an elite school, shouldn’t classroom instruction be pretty important? Miguel Urquiola says that reputation and prestige tend to trump the actual quality of instruction.

URQUIOLA: One thing I always like saying is if you’re in, say, New York City and you have a very reputable restaurant and you stop cooking well, it won’t take long before you’re out of business. You’ll die. But on the other hand, you could mismanage an elite American university for decades and you’ll still be there. You have a lot of margin of error.

DUBNER: The preservation of that elite status, would you consider that a useful and perhaps even noble incentive or a selfish incentive for the universities?

URQUIOLA: I think it has both features. So it is selfish and in a way can be viewed very negatively because why don’t you just take more people? Why are you trying to keep this sort of club and this sort of prestige? The other way of seeing it is that that prestige is what enables these schools to have access to a tremendous amount of resources and lots of talent. And one way you could rationalize it — and I think it’s perfectly defensible — is to say, if I’m Stanford or if I’m Johns Hopkins, my job is to be doing, for example, research and producing knowledge that does serve the common good, right? People at Penn were involved in the creation of the Covid vaccine. People in Peru are extremely grateful that this happened, and people in Ghana.

DUBNER: Let’s talk about this from the perspective of, let’s say, a high school sophomore or junior, maybe the parent of that student. Can you talk for a moment about the best way to think about the college choice, especially along two dimensions that I see a lot of people struggling with. One is reputation, and one is fit. With reputation, it seems that in certain circles, almost all students want to attend the highest-status university to which they can be admitted. And if they’re admitted to University of Chicago and Princeton, then maybe there’s a little bit of a debate — well, Ivy versus Chicago, et cetera, et cetera. But I sense that in other circles, there’s more of an interest in finding the right fit. And that fit may have to do with the academic programs, the general environment, the kinds of people that attend the university as students, the kinds of people that are faculty there, the cost of the university and so on. Can you give some general advice to that parent or student about how to think about reputation versus fit?

URQUIOLA: Yeah, what I would put generally in the category of fit is like, what will this school do for my kid in terms of teaching them something that they like, or teaching them good skills? And the reputational side is more, what will the school do for my kid in terms of the brand that will be attached to my kid? Reputation matters. There’s evidence that it matters on the labor market. We end up going for the reputation rather than for the fit, because the fit is going to be something that’s hard to measure.

DUBNER: You cited evidence of a positive relationship between university status and the labor market. How strong is that evidence?

URQUIOLA: That’s a good question. So, I have found in research in the country of Colombia that it’s extremely important, that it basically puts you on a different trajectory, like if you go to a more selective school, you’re going to get a better job initially and your advantage will in fact expand.

BLAIR: Wall Street almost exclusively comes to the most elite universities in the U.S. and says only these universities are going to have direct access to Wall Street.

That, again, is the economist Peter Blair, co-author of the paper “Why Don’t Elite Colleges Expand Supply?

BLAIR: I think it’s more a function of the intentional strategy on the labor-demand side of firms than it is on the students’ side. And then as students know that they’re going to be recruited, they’re going to make a lot of money, and that this is going to be a signal to their peers into the broader society, then that is a more well-paved path.

This brings us back to the central conflict: elite schools confer advantages on their students in part through the promise of exclusivity; but they can’t expand their supply — they can’t make their excellence available to more students — without diluting their exclusivity. That, at least, is how these schools appear to operate. Remember, as Blair told us earlier, elite schools in the U.S. have grown by only a little bit.

BLAIR: Schools in the top 2 percent have grown by about 7 percent.

And the growth rate of the non-elites?

BLAIR: It’s about 60 percent.

So here’s an obvious question: is it possible for an elite school to get bigger without diluting its prestige? Peter Blair thinks so. And he says there’s one university — actually, one university system — that’s figured it out.

BLAIR: Where we see this happening quite successfully is with the U.C. system, the University of California system, U.C. Merced, U.C. Irvine, U.C. Davis — these are all relatively new universities that have been created in the past 50 or 60 years, and in a very short time, these universities have become powerhouses.

Zachary BLEEMER: The University of California has grown to a far greater extent than certainly any private university in the U.S. and almost any public university.

That is Zachary Bleemer.

BLEEMER: It’s doubled in size and more over the last 30 years.

Bleemer is an economist who’s been doing research at Opportunity Insights, a research group at Harvard that tries to identify the barriers to income mobility. Put another way, they try to figure out why the American Dream seems to have faded away for many people. But Bleemer says the University of California story is a bright spot. Now, how’d that happen?

BLEEMER: The University of California was charged in 1960 by the California Master Plan for Higher Education with educating the top 12.5 percent of California high school graduates. As a result, the university has grown with the state of California’s population, which as many people know, has grown very dramatically over the last 50 years.

How have they been able to expand so aggressively?

BLEEMER: One way that the university has attempted to expand enrollment has been to build a new campus, a relatively unusual proposition in the 21st century, that California has used with unusual success. The University of California campus at Merced opened in 2005. It now enrolls over 10,000 undergraduates. That’s been an important way for the university to provide access to a lot of students who would otherwise not be able to enroll at a similar-quality university.

And what kind of quality are we talking about here? Today, there are 10 University of California campuses, four of which are in the top 25 of the U.S. News & World Report ranking of best global universities. Berkeley ranks fourth, just above Oxford. This quality begets funding: the U.C. system takes in billions of research dollars every year from the federal government. And this funding begets more quality: it’s a lot easier to hire great professors and researchers with research money in place. The California schools have another hiring advantage.

BLEEMER: Because California is such an appealing place for many people to live, that’s made it a draw for very high-quality faculty who are often willing to forgo higher salaries or other perks at other elite universities.

And that’s because even East Coast prestige has a hard time competing with California weather.

BLEEMER: I was a couple of minutes late to this interview, slip-sliding my way across sheets of ice. The amenity value of living in California is very appealing. It’s in my face at the moment.

What if you want to replicate the University of California’s success but you can’t offer the benefits of California itself?

BLEEMER: Yeah, it would be difficult for universities in other states to replicate California’s weather. But what is available to schools anywhere in the U.S. is a growing body of research that suggests that direct educational expenditure, which means having high-paid faculty and top graduate students providing education to undergraduate students from all walks of life and from all backgrounds, is extremely valuable to those students in the long run. Similarly, providing strong student services to help struggling students and to keep students in school is extremely valuable in the long run to those students.

There’s one more advantage the University of California system has, a structural advantage, which can be replicated. Because the U.C. schools are all part of the same network, not only do they share a lot of resources, but they also aren’t competing against one another in the same zero-sum way that independent schools do. Imagine that Harvard decides to admit more students each year to expand access to its world-class institution; but what if that expansion diminishes Harvard’s exclusivity to the point that it slips in the rankings? That’s good news for Princeton and Yale. So, Harvard doesn’t have much incentive to do that. Here again is Peter Blair, the Harvard economist who built a model to understand why elite colleges don’t expand.

BLAIR: What we find in the model is that the inability of an individual university to shift the norm towards expanding, that’s the challenge.

But let’s say the University of California-San Diego were to slip in the ranks, perhaps to the benefit of U.C. Irvine or U.C. Davis — well, for the University of California system, that’s not such a big deal. You could imagine the Ivy League schools doing something similar — getting together and agreeing to admit 10 percent more students over the next few years. Could this actually happen?

BLAIR: So, this would be very similar to what’s happening with the Paris Accords around climate change, where we’re coming together as countries from around the world and committing to reducing the amount of carbon that we emit, but doing that collectively, that creates a sense of shared responsibility where nobody is going to unilaterally reduce their carbon and then become less competitive and then be overtaken by a peer country. Imagine, Stephen, if the presidents of the Ivy League and the Ivy-plus universities came along with their boards and with the alumni associations and with current students, saying, “How can we work together to make these experiences accessible to more students?”

DUBNER: I am trying to imagine that Peter, but I’m having a little bit of a hard time. Let me give you a parallel example, or a parallel explanation for why. I think back to a little under 10 years ago, when Yale had opened a campus in Singapore. And at the time, Drew Faust, the president of Harvard, was asked if Harvard would do something like that. And she said no; they weren’t interested in establishing an undergraduate campus abroad. But then, Harvard’s vice provost for international affairs, George Dominguez, said, “I’m not in the McDonald’s franchising business.” That sounded to me like a person who understood that his brand, Harvard, was an extraordinarily powerful and attractive brand, and it would be foolish to consider watering it down. And so while I’m trying to envision this interesting, and perhaps utopian world, where the Ivies and Ivy-pluses, as you put it, would come together to come up with a way to smartly create more supply for this overwhelming demand, at the end of the day, and I think you would probably know this better than I as an economist, people respond to incentives and university presidents, provosts, and vice provosts are people. So I wonder if there’s just not too much private incentive there for them to keep their prestige as high as they can at the expense of the potential beneficiaries of expanded supply.

BLAIR: Hmm. Wow. Wow, wow, wow. That’s the million-dollar question. What our paper does is it provides a roadmap for understanding how universities can expand. And the key message there is that there needs to be coordination. We don’t think that the goal is to try and point the finger at universities. In fact, what the data and the model are showing us is that the lack of expansion is not because universities are acting selfishly. It really is because of their inability to coordinate more broadly. And in fact, they’re constrained by the law, which reduces their capacity to coordinate. So at the highest level, there is a policy question, which is, should we look at this as a context where we ought to rethink what we know about the role of antitrust? So that’s the first level. And then the second level is, can we convene a group of universities to say, “We recognize that we are in a situation where we’re pitted against each other in terms of rankings, and this isn’t good for us, this is not good for students, and this is not good for society. So how can we work together to preserve the quality that we have as institutions and do that in a way that also expands access by increasing the number of spaces that are available?”

DUBNER: Have these elite universities ever had any discussion about that sort of prosocial collusion?

BLAIR: So yes, they have. I think this was in the 1990s. Universities used to coordinate on admissions decisions and financial aid. And this was ruled illegal by the F.T.C. The Sherman Antitrust Act makes it illegal for universities to collude, in part because the general thinking around this type of cooperation is that oftentimes, it works in the interests of producers and not in the interests of consumers. And a key insight of our paper is that this is a context where if universities were able to coordinate or to cooperate, they could actually increase the social surplus, not decrease it. 

It is a lovely notion, as Peter Blair puts it, to “increase the social surplus” rather than decrease it. Isn’t that the whole idea behind the university in the first place? But: one reason this sort of collusion isn’t likely — and why universities probably won’t receive an antitrust exemption any time soon — is because of a different sort of collusion they’ve allegedly engaged in. As a recent New York Times headline put it: “Lawsuit Says 16 Elite Colleges Are Part of Price-Fixing Cartel.” The complaint argues that these colleges “have overcharged an estimated 170,000 students who were eligible for financial aid.” Headlines like these, research like Peter Blair’s, and scandals like Operation Varsity Blues — all this makes it hard to believe we’re actually heading for a big change. It can also make it hard to even root for universities. Miguel Urquiola, again, from Columbia.

URQUIOLA: Politically, I think the U.S. has gotten into a situation in which sometimes I joke that the university doesn’t have a lot of friends. From the right wing, there seems to be a lot of suspicion of the university because it often is perceived to be friendlier towards a more left-leaning orientation. From the left wing, the university is viewed very badly because they’re basically perceived as this machine for perpetuating inequality. And so sometimes I think the university is basically left abandoned and no one’s going to protect it.

*     *     *

Freakonomics Radio is produced by Stitcher and Renbud Radio. This series is being produced by Zack Lapinski. Our staff also includes Alison Craiglow, Greg Rippin, Gabriel Roth, Ryan Kelley, Mary Diduch, Rebecca Lee Douglas, Morgan Levey, Julie Kanfer, Emma Tyrrell, Jasmin Klinger, Eleanor Osborne, Lyric Bowditch, Jacob Clemente, and Alina Kulman; we had help this week from Jeremy Johnston. Our theme song is “Mr. Fortune,” by the Hitchhikers; the rest of the music this week was composed by Luis Guerra. You can follow Freakonomics Radio on Apple PodcastsSpotifyStitcher, or wherever you get your podcasts.

Read full Transcript




Episode Video