Information Acquisition in the Context of a Centralized School Admission System
Felipe Correa B.
Tesis, Magíster en Economía, IE-PUC, 2020
Abstract: In the context of a centralized school admission system-specifically a Deferred Acceptance- we study the process of information acquisition over the quality of a school. Under the assumption of homogeneous agents in everything except on their cost for acquiring information, we analyze the different equilibriums that can arise and how they differ from what a Social Planner does. We present two versions of the model, one where the agents’ valuations over the school are independent of each other, and a second where agents have common valuations over the school. In the first model, we find both positive and negative externalities of the agents’ information acquisition. The result depends on what the uninformed agents prefer to do. In the second one, the behavior of the uninformed agents’ is endogenous to the model because of what we call the “curse of the uninformed”, produced by those with small information acquisition costs taking advantage of that, and avoiding the school when it is of bad quality; giving those who do not acquire a greater probability of being selected in that case. There, in almost all cases, we found negative externalities from the acquisition of information. This work suggests that, under certain conditions of the uninformed agents’ behavior, when the preferences over schools are horizontally differentiated, there could be gains if a central authority implements policies to reduce the information’s cost. However, if the agents’ valuations are common, it is diffcult to improve the aggregate welfare by making information cheaper. In almost all cases, it will make aggregate welfare fall. Making those with the highest cost worse off.