Is Harvard the top rated college because it is the most clever in deciding who to admit? Not obviously. Instead, in the short run Harvard can gain plenty from a positive feedback loop: the best people apply and prefer to go there, which adds a glow to those who graduate from there, which makes the best want to apply, and so on.
Wealthy Washington U. of St. Louis was following that strategy when I was applying to college in the 1970s. It seems to have helped its reputation over the last generation. Of course, it's not a newcomer: it was founded by T.S. Eliot's grandfather.
Barring a strategic misstep by the top player, the order of a hierarchy of this type seems very hard to change. This is because the organization's primary asset is reputation, held in the collective minds of all potential customers. How long have Harvard, Yale, and Princeton held their positions at the top of the university hierarchy? Decades at least. The same dynamic is observed in elite law firms., investment banks, elite advertising firms, elite preperatory schools, etc. Any brand whose primary value is in its reputation is incredibly hard to unseat, again barring a strategic misstep (damaging the brand and creating space for a competitor) or a change in the underlying situation. If the overall market grows, there is room for more players near the top, see Stanford for example as rising to near Harvard levels of reputation yet without diminishing Harvard's rep. If the the overall market shrinks, as it did for banks and elite law firms in the recent financial recession, players may exit / get acquired (see Lehman, Merril Lynch), or downsize out of elite status (several law firms). There has always been an element of the "the best wants to associate with the best", "A"-level players don't work for "C" level players" (Jack Welch). However for large organizations, reputation is how most people keep mental track of the rankings, which is all that matters.
What would happen if a newcomer with the capital to absorb some early losses exercised elite selectivity at relatively discounted prices? Surely the quality of their graduates would be noticed eventually?
Isn't this subsumable under entry costs? Where monopoly results from prestige, the same analysis should apply. [One way of putting the conclusion is that prestige differentials can generate formidable entry costs.]
While trying to forumlate an alternative model for "Elite Evaluator Rents", I hit a question that really belongs here: What would happen if a newcomer with the capital to absorb some early losses exercised elite selectivity at relatively discounted prices? Surely the quality of their graduates would be noticed eventually?
I think the answer is that this would work eventually, but it might take a generation of losses, which would be hard to get the capital for. It might work faster and be viable if it were opened under a prestigious name. Has Google Ventures been more successful more quickly than an equally wise and wealthy VC without the name could have been?
I must admit I haven’t been thinking enough in such terms, probably in part because I haven’t seen formal economic models that capture this story well.
Given your views on the superfluousness of many formal models (and this one in particular), that isn't a very convincing explanation (unless insight into status doesn't mitigate status strivings, which I suspect).
What about the more important reasons: like your naive a priori faith in the market.
Recently I have seen one consultant pulled in whose signature credential is merely being an instructor at Harvard--the brand clearly is his main asset and he's not even a tenured Prof. Elizabeth Warren doubled her salary (at least) via consulting for large corporations and government panels (crony capitalists love lefty profs), clearly using her Harvard professorship as her main asset, and was had $3MM in liquid assets as of 2010. Not quite Goldmanesque, but not bad, especially considering they probably get a lot more status rents being Harvard profs than Goldman partners that are good for things like getting their kids good internships and flattering press profiles.
IMHO– Harvard has this positive loop in their favor even more so than the top VCs, I think particularly because of brand loyalty from wealthy families.
John Stuart Mill would find this highly utilitarian.
"It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, is of a different opinion, it is only because they only know their own side of the question.”
The utiles of the few dramatically outweigh the rest, still leading to the greatest good for all.
Harvard's dominant position today is a legacy of the University taking the lead in scientifically studying admissions in the mid-20th Century. Over the generations, Harvard invested heavily in researching admissions, for example Harvard President James Conant had Henry Chauncey research the SAT in the 1930s and then Harvard took the lead in pushing the SAT. Similarly, you can see how much intensive social science research Harvard did on its own admission processes in the 1970s from Robert Klitgaard's 1985 book "Choosing Elites." The opaque system of affirmative action in admissions that Harvard came up with in the 1970s was endorsed by the Supreme Court in the late 1970s Bakke decision and has proven pretty stable since then.
I'm not sure. I suspect he's genuinely interested in the dynamics of it all and enjoys discussing that subject with someone like Robin Hanson. At the same time he's both admitting he's just lifting on a viral effect (though I'm sure that for his own sanity he considers himself having been essential to establishing the right initial state for the viral effect to work with), this hurts the standing of the VC industry (and many others), and he's boasting that this provides evidence that his VC firm is objectively among the most profitable. The latter could be seen as a commercial for his firm specifically, but the former is a rare form of honesty that hurts the economic elites in a very broad manner; he's giving leftist activists a weapon to use against him. If I were Robin I'd say Andreessen signals that he's feeling so untouchable that he can air his class' dirty laundry on Twitter and get away with it.
Is Andreesen supposed to be a thinker in economics? (Is account taken of the dependence of his own success on the magnification of small differences by feedback loops inherent in capitalism - this being much of the burden of the first volume of Karl Marx's Capital?)
Harvard works really well because they keep admission constant as the world grows and more applicants arise, and Goldman can avoid getting too big. But if they just wanted to increase cashflow over the next several years, they would take in a lot more employees/customers, cash out, and watch as those newer low-quality products matriculate.
Perhaps that suggests that if we think brand-values add value to the systems they operate in, you want them to have incentives like Goldman and Harvard, not McDonalds and GM. The key is that insiders retain a good deal (eg, Goldman bonus pool is about the same size as corporate profits) of the rents from the brand. There's no getting around the inegalitarian attributes of such a mechanism, which most utilitarian models might find 'non-optimal'.
Wealthy Washington U. of St. Louis was following that strategy when I was applying to college in the 1970s. It seems to have helped its reputation over the last generation. Of course, it's not a newcomer: it was founded by T.S. Eliot's grandfather.
Barring a strategic misstep by the top player, the order of a hierarchy of this type seems very hard to change. This is because the organization's primary asset is reputation, held in the collective minds of all potential customers. How long have Harvard, Yale, and Princeton held their positions at the top of the university hierarchy? Decades at least. The same dynamic is observed in elite law firms., investment banks, elite advertising firms, elite preperatory schools, etc. Any brand whose primary value is in its reputation is incredibly hard to unseat, again barring a strategic misstep (damaging the brand and creating space for a competitor) or a change in the underlying situation. If the overall market grows, there is room for more players near the top, see Stanford for example as rising to near Harvard levels of reputation yet without diminishing Harvard's rep. If the the overall market shrinks, as it did for banks and elite law firms in the recent financial recession, players may exit / get acquired (see Lehman, Merril Lynch), or downsize out of elite status (several law firms). There has always been an element of the "the best wants to associate with the best", "A"-level players don't work for "C" level players" (Jack Welch). However for large organizations, reputation is how most people keep mental track of the rankings, which is all that matters.
Yes, that makes sense.
What would happen if a newcomer with the capital to absorb some early losses exercised elite selectivity at relatively discounted prices? Surely the quality of their graduates would be noticed eventually?
Isn't this subsumable under entry costs? Where monopoly results from prestige, the same analysis should apply. [One way of putting the conclusion is that prestige differentials can generate formidable entry costs.]
While trying to forumlate an alternative model for "Elite Evaluator Rents", I hit a question that really belongs here: What would happen if a newcomer with the capital to absorb some early losses exercised elite selectivity at relatively discounted prices? Surely the quality of their graduates would be noticed eventually?
I think the answer is that this would work eventually, but it might take a generation of losses, which would be hard to get the capital for. It might work faster and be viable if it were opened under a prestigious name. Has Google Ventures been more successful more quickly than an equally wise and wealthy VC without the name could have been?
I must admit I haven’t been thinking enough in such terms, probably in part because I haven’t seen formal economic models that capture this story well.
Given your views on the superfluousness of many formal models (and this one in particular), that isn't a very convincing explanation (unless insight into status doesn't mitigate status strivings, which I suspect).
What about the more important reasons: like your naive a priori faith in the market.
Recently I have seen one consultant pulled in whose signature credential is merely being an instructor at Harvard--the brand clearly is his main asset and he's not even a tenured Prof. Elizabeth Warren doubled her salary (at least) via consulting for large corporations and government panels (crony capitalists love lefty profs), clearly using her Harvard professorship as her main asset, and was had $3MM in liquid assets as of 2010. Not quite Goldmanesque, but not bad, especially considering they probably get a lot more status rents being Harvard profs than Goldman partners that are good for things like getting their kids good internships and flattering press profiles.
IMHO– Harvard has this positive loop in their favor even more so than the top VCs, I think particularly because of brand loyalty from wealthy families.
John Stuart Mill would find this highly utilitarian.
"It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, is of a different opinion, it is only because they only know their own side of the question.”
The utiles of the few dramatically outweigh the rest, still leading to the greatest good for all.
Harvard's dominant position today is a legacy of the University taking the lead in scientifically studying admissions in the mid-20th Century. Over the generations, Harvard invested heavily in researching admissions, for example Harvard President James Conant had Henry Chauncey research the SAT in the 1930s and then Harvard took the lead in pushing the SAT. Similarly, you can see how much intensive social science research Harvard did on its own admission processes in the 1970s from Robert Klitgaard's 1985 book "Choosing Elites." The opaque system of affirmative action in admissions that Harvard came up with in the 1970s was endorsed by the Supreme Court in the late 1970s Bakke decision and has proven pretty stable since then.
How much is gaining tenure at a university like making partner at a professional partnership?
http://www.wsj.com/video/ma...
Andreessen learned a lot from Hollywood agent Mike Ovitz.
I'm not sure. I suspect he's genuinely interested in the dynamics of it all and enjoys discussing that subject with someone like Robin Hanson. At the same time he's both admitting he's just lifting on a viral effect (though I'm sure that for his own sanity he considers himself having been essential to establishing the right initial state for the viral effect to work with), this hurts the standing of the VC industry (and many others), and he's boasting that this provides evidence that his VC firm is objectively among the most profitable. The latter could be seen as a commercial for his firm specifically, but the former is a rare form of honesty that hurts the economic elites in a very broad manner; he's giving leftist activists a weapon to use against him. If I were Robin I'd say Andreessen signals that he's feeling so untouchable that he can air his class' dirty laundry on Twitter and get away with it.
Is Andreesen supposed to be a thinker in economics? (Is account taken of the dependence of his own success on the magnification of small differences by feedback loops inherent in capitalism - this being much of the burden of the first volume of Karl Marx's Capital?)
Harvard works really well because they keep admission constant as the world grows and more applicants arise, and Goldman can avoid getting too big. But if they just wanted to increase cashflow over the next several years, they would take in a lot more employees/customers, cash out, and watch as those newer low-quality products matriculate.
Perhaps that suggests that if we think brand-values add value to the systems they operate in, you want them to have incentives like Goldman and Harvard, not McDonalds and GM. The key is that insiders retain a good deal (eg, Goldman bonus pool is about the same size as corporate profits) of the rents from the brand. There's no getting around the inegalitarian attributes of such a mechanism, which most utilitarian models might find 'non-optimal'.