Striving for Excellence: University Competition, Quality Perceptions, and Ability Sorting

We study the effects of a label awarded to universities for excellence in research on students' perception of educational quality and enrolment in subsequent admission terms. Using a representative student survey we find that students evaluate the teaching and supervision quality of their institution better immediately after it was labelled "excellent". Furthermore, the award of the excellence label allow universities to enrol better high school graduates in subsequent admission terms, with economics students showing the strongest response. Our results provide evidence that students use the label as a signal for educational quality that affects application decisions and reinforces ability sorting between universities, a side-effect of a policy designed to raise efficiency of universities.