China World-Class University Label and Students’ College Preferences (Joint work with Xiaoyang Ye)

Product labels are prevalent in consumer markets, serving as both a signal of product quality and, in some cases, providing psychological value to consumers. This study estimates the perceived monetary value of the signaling effect of a college label and the non-monetary preference for attending an elite college in the Chinese education market. We first establish that students react to the government-certified World-Class University label. As part of a higher education development initiative, the 2017 reform added 25 institutions to the original list of 115 labeled universities without significantly increasing fiscal investment. These newly labeled universities experienced a 0.07 standard deviation increase in the average college entrance exam (CEE) scores of admitted students relative to matched non-labeled institutions. Using administrative college application data, we estimate a random utility model and find that students are willing to travel an additional 294 km to attend early-labeled WCUs and 57 km for newly labeled ones, relative to a baseline of 910 km. The WCU label emerges as one of the most important factors influencing students’ college choices. Then, we build on these findings by quantifying the value students place on labeled universities and disentangling the perceived monetary return (labor market premium) from the non-monetary value (willingness to pay). An information experiment reveals that students perceive an 11% earnings premium from attending a World-Class University (WCU). In addition, a stated preference survey using hypothetical choice scenarios shows that students are willing to forgo 13% of their expected earnings to attend a WCU, underscoring the substantial non-monetary value associated with the label. Taken together, these findings suggest that the combined perceived value of the WCU label amounts to 24% of expected earnings.