Selective Schools

This paper studies how schooling admission tests affect economic performance in an economy where individuals are endowed with both academic and non-academic abilities and both abilities matter for labour productivity. We develop a simple model with schools run by the goverment, where individuals signal their abilities by taking an admission test and sort into low quality and high quality schools. When abilities are poorly correlated in the population, as documented in the literature, a standard test based only on academic abilities can be less efficient than a balanced test, which considers both ability types. We show that a sequential testing strategy, with schools testing academic abilities and firms testing non-academic abilities on the sub-sample of graduates of high quality schools, does not necessarily replicate the outcome of a balanced test.