Centralized assignment systems are a popular policy tool to improve fairness and efficiency in allocating students to public college seats. In most implementations, however, private college admissions remain decentralized, which may give high socio-economic status (SES) students a strategic advantage in the centralized public match because they derive higher value from expensive private alternatives. I empirically study application behavior and the allocation of students in markets where only public college seats are centrally assigned with new data from the college match in Albania. Using a policy change that incorporated all private colleges in the centralized platform, which differentially shifted outside alternatives by SES, I find that when private colleges operate outside the match, high-SES students apply to more selective portfolios and enroll in more selective public programs, but the selectivity gap in applications shrinks after the policy change. I build and estimate a model of applications and matriculation that uses the unique institutional features of the Albanian college admissions to disentangle the effects of heterogeneous beliefs, preferences, and outside options on choice, and evaluate the distributional consequences of counterfactual admissions design. I find that removing outside options reverses the welfare gap in favor of lower-SES students, but at the expense of overall market efficiency. This is driven by the fact that outside options dampen the distortionary effects of list size restrictions and incorrect beliefs on choice.

This talk is presented by the Labor Economics Seminar, sponsored in part by the Department of Economics with generous gifts given through the Abraham and Thelma Zwerdling Labor Economics Program.