Nova workboard

a blog from young economists at Nova SBE

Signalling – When did universities stop maximizing performance and start maximizing Rankings?

Throughout history there is never been a more educated and qualified generation as there is today, with an increasing number of people holding a bachelor’s degree or higher. This reflects a more demanding society, thirsty of innovation and efficiency.

In order to satisfy this demand, universities struggle to guarantee the best performance of their students when entering the labour market. Those which excel in that task understand that in order to prepare their students and ensure their optimal performance, these institutions have to balance the complex numerous variables that influence that performance.

The first step to achieve such goal is to guarantee the enrolment of the best and most promising students. However, students are not fully aware of each university’s quality of education. And even if they gather as much information as they can, they will still face incomplete or misleading information.

Therefore, universities try to correct this market inefficiency by providing information about themselves (which in microeconomic theory is also known as signalling). That is why marketing campaigns are design for such task. Moreover, we can observe that universities try to maximize their position in renowned rankings because they act as a proxy for students to understand the quality of the education.

But even if we assume that these marketing campaigns are efficient and renowned rankings are well-design, is it possible to ensure that signalling costs translate incremental performance? Is the increase in total cost from getting one extra student equals to the increase in the performance of having such student?

The problem that may concerns society is that if “everyone” is signalling (and some do it better than others) there may be unnecessary costs because students end up not knowing how to treat all of the information. This investment offers a private benefit for some universities but the social benefit is not optimal. There could be too much concerned with external image and a non-optimal efficiency “inside” the institution. The output could be the same with fewer resources.

Let us look for a particular variable, for instance the percentage of foreign students in a master programme. On average, all students will benefit with external exposure. But is the criteria defined in such a way that the overall students benefit with the optimal percentage of foreign students? Or is it defined for the external image? Is it over or under the optimal “performance”?

The last example shows how complex those targets are when being defined. Nevertheless, there are some concerns in if universities are using renowned rankings as a guide and making decisions in order to maximize it or if they are maximizing the future performance of the students knowing that the ranking will affect it. Are we sure is it being done correctly? Are universities doing their best to “shape powerful minds”?

António Ribeiro dos Santos 693

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Author: studentnovasbe

Master student in Nova Sbe

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