Becker Friedman Institute

Research Repository

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

College Diversity and Investment Incentives

We study the aggregate economic effects of diversity policies such as affirmative action in college admission. If agents are constrained in the side payments they can make, the free market allocation displays excessive segregation relative to the first-best. Affirmative action policies can restore diversity within colleges but also affect incentives to invest in pre-college scholastic achievement. Affirmative action policies that are achievement-based can increase aggregate investment and income, reduce inequality, and increase aggregate welfare relative to the free market outcome. They may also be more effective than decentralized policies such as cross-subsidization of students by colleges.

Authors: 
Thomas Gall
Patrick Legros
Andrew Newman, Boston University
Publication Date: 
January, 2015
Publication Status: 
Document Number: 
2015-001
File Description: 
First version, December 2014