The Cost of Rankings? The Influence of College Rankings on Institutional Management.

Abstract

Increasing college costs and financial consequences for students and families have created a need to collect and disseminate information about institutions to better inform students and parents as they make an important education decision. To fill this need, several media outlets started to publish college rankings for commercial purposes. Rankings have proven popular and influential as evidenced by growing sales and attention to their numerical ranking by publishers, educational observers, and higher education administrators and faculty. Despite the growing concerns that rankings intensify institutional competition for prestige, limited empirical research exists on how ranking systems affect the resource allocation behavior of universities. This dissertation explores how college rankings impact resource allocation by higher education institutions, given the unique characteristics of rankings—numerical order, arbitrary grouping, and volatility. Utilizing the U.S. News and World Report’s Best Colleges Rankings (USNWR) 1987-2009, this study examines changes in institutional expenditures, particularly in the three areas that are heavily weighted in rankings: student selectivity, financial resources, and faculty resources. Employing a differences-in-differences and differences-in-differences-in-differences approach based on the unexpected changes in the methodology of USNWR, this study demonstrates that the numerical ordering of universities encourages institutions comply with what rankings measure by increasing expenditures in all three areas. The event-study specification results indicate that expenses that are related to student selectivity are the ones that schools respond to immediately, while the effect lasts over time for financial and faculty resources. The areas of expenditures that experience significant changes differ between National Universities and National Liberal Arts Colleges. Furthermore, the arbitrary grouping of rankings serves as an important mechanism that drives institutional responses to rankings. Schools ranked near at the cut-off of the ranking groups take on a bigger increase in the expenditures in the areas that rankings directly measure. Year-to-year changes in the ranking positions encourage universities to move resources from a routinized, universal expenditure to categories that are perceived to provide more leverage to improve rankings. The study’s findings have important implications for the use of rankings/ratings systems in higher education as well as future research on the pursuit of prestige and institutional behaviors.