DOES THE RIVER SPILL OVER? ESTIMATING THE ECONOMIC RETURNS TO ATTENDING A RACIALLY DIVERSE COLLEGE

[T]he attainment of a diverse student body ... is a constitutionally permissible goal for an institution of higher education.... The atmosphere of 'speculation, experiment and creation'--so essential to the quality of higher education--is widely believed to be promoted by a diverse student body. --Lewis Powell, Regents of the University of California v. Bakke (438 U.S. 265, 1978, pp. 311-12, quoting Sweezy v. New Hampshire, 354 U.S. 234, 1957, p. 263) I. INTRODUCTION For more than a quarter century, the belief that diversity contributes to the quality of undergraduate and graduate education has motivated court opinions and college policies regarding racial preferences in admissions. (l) Surprisingly, the social sciences have provided very little evidence to support or refute this claim. Such evidence would clearly be of great interest both to policy makers and to scholars conducting more general studies of the impacts of affirmative action on higher education. (2) In the absence of programs employing random assignment of individuals to campuses with varying degrees of racial diversity, any evidence offered on this question will be subject to criticism that diversity may correlate with unobserved determinants of individual outcomes. (3) In such a scenario, policy makers face an unenviable choice of making uninformed decisions or paying attention to potentially imperfect research findings. This article does not claim to solve all the issues involved in the identification of racial diversity effects. As described below, however, we use a promising data source, the College and Beyond (C&B) data set, and a variety of identification strategies to gain some degree of insight into the question of whether exposure to diversity is beneficial for college students. We find no evidence of a positive link between the two variables, and the imperfections of our research design most likely lead us to overstate the likelihood that there is such a link. We begin by translating Powell's hypothesis into economic terms. Building on the existing concepts of human capital (Becker 1964) and ethnic capital (Borjas 1992, 1995) and inspired by Lazear's (1995) model of cultural assimilation, we introduce the concept of "diversity capital." We define diversity capital as a measure of an individual's ability to create surplus in interactions with individuals of different racial, ethnic, or socioeconomic backgrounds. In this context, the beliefs articulated by Lewis Powell in 1978 translate into a hypothesis that a diverse student body contributes, directly or indirectly, to diversity capital. With this proposed causal mechanism in mind, we focus our empirical analysis on a direct estimation of the relationship between minority representation and the postgraduation outcomes of undergraduates on elite campuses. Although our model of the returns to collegiate diversity is simple, empirical estimation of the returns to diversity is complicated by an omitted variable problem: College racial composition may correlate with unobserved institution-level components of education quality or with individual-level determinants of productivity. In our sample of selective colleges, the sign of this bias is most likely positive. Among selective colleges, those matriculating the students with the highest SAT scores also tend to have higher minority representation. If student SAT scores are imperfectly but positively correlated with unobserved determinants of productivity, our estimates will exhibit a positive bias and thus overstate the case that exposure to underrepresented minorities (URMs) improves postgraduate outcomes. (4) In one set of specifications, we allow the effect of exposure to diversity to vary with the relative position of individual students and peers in the SAT score distribution. In general, we find that the type of diversity increase brought about by affirmative action policies--which brings lower scoring minority students into potential contact with higher scoring majority-race students--is if anything detrimental to majority-race students. …