Alumni as Assets: Legacy Preferences, Expected Donations andSelective Admissions in a Dynamic Model of Elite Colleges
Alexander Monge-Naranjo Damien Capelle †Kazushige Matsuda ‡Extended Abstract, February 2024

Abstract
This paper analyzes the emergence of donations and legacies as equilibrium policies at US elitecolleges and investigates their implications for student composition, college quality and intergenerational
mobility. We propose a novel model of college markets in which alumni’s a¢nity and willingness to donate
to their alma mater shape the elite colleges’ optimal tuition and admission policies. Our framework
conceptualizes alumni as assets of a college: a college’s current admission and tuition policies depend
on current and future returns associated with a student’s legacy status and expected donation. Morespecifically, colleges are more likely to admit legacies whose parents are more generous donors, andstudents who will themselves be generous alumni in the future. Holding donations and academic ability
constant, colleges charge legacies higher tuition to take advantage of their lower demand elasticity.
To quantitatively assess the importance of these mechanisms for the composition of students, college
quality and intergenerational mobility, we calibrate the model to match important moments of themicro-data, including the composition of elite college’s students by parental income and legacy status,
gross and net tuition, the sensitivity of donations to admission policies and income distributions of elitecolleges’ graduates. Given the lack of data on legacy admissions, we rely on a combination of publiclystated shares of legacies for a subset of colleges and internal documents released during the Students for
Fair Admissions vs Harvard case. Using the calibrated model, we then run counterfactuals to evaluate
the short and long-run impacts of legacies admissions and donations on the student composition andfinancing of colleges.
Our paper generalizes the static frameworks in the literature (Epple and Romano, 2006; Cai andHeathcote, 2023) to a dynamic setting where elite colleges price discrminate based on the student’s academic credentials but also on legacy status and in which alumni’s donations are endogenously determined.
Relative to the recent literature that looks at legacy admissions from an empirical or semi-structural
perspective (Chetty, Deming and Friedman, 2023; Arcidiacono, Kinsler and Ransom, 2023), we propose
a fully-microfounded model of college’s and households’ joint decision, thus relating college’s quality, tuition and donations to policies and policy-invariant parameters. This in turn allows us to provide a morecredible assessment of the impact of policies a§ecting legacies admissions and donations. In addition,
while the literature is focused on the short-term e§ects of legacy admissions on student composition, ourdynamic framework allows to think through long-run impacts on intergenerational mobility, inequality
and college quality.
Keywords: Higher Education; Legacy Preferences; College Selection; Social Mobility.
JEL Codes: D25, D31, I22, I23, I24.

European University Institute, CEPR and FRB of St. Louis.
International Monetary Fund.
‡Keio University†