Report Cards • 353

rankings of universities and hospitals are also weighted averages, where the weights are subjectively determined by the editor responsible for constructing the rankings.

Gaming Report Cards

In an ideal world, sellers will respond to the publication of report cards by making investments to improve their quality. But this can be difficult and expensive. Depending on how report cards are constructed, sellers can also boost their scores through careful manipulation of product attributes and judicious choice of customers. This helps the manipulative sellers, but does nothing to help consumers and can even be harmful.

Colleges and universities in the United States are acutely aware of their rankings in U.S. News and World Reports. Two key statistics used to construct these rankings are the acceptance rate and the yield. Colleges and universities can improve both by hiring top faculty, improving facilities, and even by having winning sports programs. But these are all costly and may not necessarily pay off in the rankings.

Universities have also found ways to game the rankings—taking steps that improve their rankings without changing anything tangible about their schools. For example, some universities have simplified the application process in order to encourage more applications. Because the number of admission slots usually remains fixed, these universities are able to reduce their acceptance rate. Northwestern University benefited from this strategy in 2007, when for the first time it accepted the “Common App,” which allows applicants to use the same materials to apply to all participating schools. Applications to Northwestern immediately increased sharply, and the school was able to reduce its acceptance rate by several percentage points while still filling its freshman class. (In fairness to our employer, applications were already on the rise, but the move to the common app provided an extra jolt.) Schools will do surprising things to improve their yield rate. Schools ranked outside of the top 20, which are often considered “fallback” schools for students who apply to top places such as Harvard, Princeton, and Stanford, often reject applicants who are clearly qualified for admission to a better school. These rejections increase the yield because the students very likely would have turned down the fallback option.

To take another example from education, many states publish grade school report cards based on how students perform on standardized educational tests. But some states do not require every student to take these tests; for example, schools can exempt students with learning disabilities. David Figlio and Lawrence Getzler show that when Florida began testing students in 1996, some schools reclassified academically weak students as learning disabled in order to boost average test scores.18 As described in Example 10.5, health economists have documented a variety of ways that providers have improved report card scores without improving the quality of care, possibly making things worse for patients.

These responses to report cards raise an important question: How can certifiers construct report cards that do more harm than good? The evidence that has emerged from education, health care, and elsewhere suggests the following:

1.In order to maximize the demand response, certifiers should report scores using simple graphics.

2.In addition to or instead of reporting many individual quality scores, certifiers should report simple composite scores.