[FOUNTAIN]High schools aren’t selling used vehiclesThose who are thinking of buying used cars face uncertainty. The car might have been in an accident or been under water during a flood. The current owner and the car dealer would know the history of the car, but it is doubtful they would tell the buyer the truth. So potential buyers don’t know whether they are getting a losing bargain.
Sellers often have detailed information on the quality of products, while buyers don’t. In economics, the imbalance of information between the seller and the buyer is called “a market with asymmetric information.” U.S. economists George Akerlof, Michael Spence and Joseph Stiglitz were awarded Nobel Prize in Economic Science in 2001 for their accomplishment on the subject.
By pointing out the imbalance of information and consequent distortion of a market, they broke the conception of the existing economic theory that markets had complete and perfect information.
Mr. Akerlof came up with the example of used-car markets. Normally, when the price of a product falls, demand rises, but he claimed that the used-car market worked differently. When used car prices are too low, customers will worry the cheap second-hand vehicles were of low quality and demand would, in fact, fall. When buyers become extremely reluctant, the market itself might collapse.
The year-round rolling admission process to colleges has a similar asymmetry. The suppliers, the high schools, know best the quality of the applicants among those who will graduate from the school. Colleges and universities can only predict the applicants’ academic merits based on the report cards written by the schools.
However, high schools are not providing reliable information to colleges. If compared to a product, the reliability for the price and quality is low. The more expensive a product, the better its quality, we would assume. But there are many exceptions. Some applicants benefit from the asymmetric information as their reports cards rate them better than they really are. As a result, those students who are competent, but have relatively lower grades, would become victims of the distorted system. Another victim would be the colleges who wish to accept only the most qualified students. High schools need to put out a reliable price, or grade report, which agrees with the quality, the academic competency.
by Nahm Yoon-ho
The writer is head of the family affairs team of the JoongAng Ilbo.