Research seminar by Branco Urosevic (University of Belgrade): «A Dynamic Model of University Selection»

On Thursday, March 22 at 4.40 pm International College of Economics and Finance held Research seminar.
Speaker: Branko Urosevic (University of Belgrade)
Theme: «A Dynamic Model of University Selection»
Venue: Pokrovski Bulvar, 11, Room Zh-822

Abstact: In this paper we study dynamic model of university selection. There are two types of students (low and high productivity) and two types of schools. High productivity students have a better chance of completing either school. In addition, for students of either type it is easier to complete less challenging school than to complete a more challenging one. Like in Spence (1973, 1974), employers cannot directly assess the quality of an individual and have to make assessments about their type based on the school that they completed. We study enrollment dynamics under different assumptions about students and employer expectation formation: a model with full rationality, a situation where employers are rational while students use naïve expectation regarding prospective salary, and a case when students use naïve and employers use adaptive expectations. We show that long run equilibrium crucially depends upon the distinction level between high and low productivity students. Reducing rationality extends the time needed to reach the long run state.