Who Captures the Value from Organizational Ratings?: Evidence from Public Schools

Abstract

Ratings of organizations and firms have become ubiquitous. These ratings, often produced by intermediaries (including private and public organizations), are designed to aid consumers and other stakeholders in their decision making while guiding rated organizations toward performance improvement or compliance. In doing so, these intermediaries introduce new information to markets. However, disparities may exist in the ability to strategically capture the value from such ratings, often due to differential access to complementary assets among stakeholders. Consequently, this differential ability can lead to outcomes contrary to the rating institutions’ intentions. Reflecting on this dynamic, we analyze how widespread access to a prevalent type of rating—school performance information, often produced to enhance transparency and equity in educational access—has affected existing economic and social disparities in America. We leverage the staged rollout of GreatSchools.org school ratings from 2006 to 2015 to answer this question. Across various outcomes and specifications, we find that the availability of school ratings has accelerated the divergence in housing values, income distributions, education levels, and racial and ethnic composition across communities. Affluent and more educated families were better positioned to strategically leverage this new information to capture educational opportunities in communities with top schools. The uneven benefits we observe highlight how ratings can unintentionally deepen existing inequalities, thereby complicating their intended impacts. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0113 .