Holistic versus test-only admission

I propose a theoretical framework under which holistic and test-only admission policies can be compared. The framework is based on an extension of the Coate–Loury model (Am Econ Rev 83(5):1220–1240, 1993) by allowing the candidate to signal in some additional attributes: The recruiting institution values the candidate’s competency in two aspects (e.g. academic and leadership skills); standardized test is available only for screening academic skill whereas the candidate can also costly signal about his leadership skill type; the recruiting institution can adopt different admission scores conditional on the presence or absence of the leadership signal (i.e. holistic admission); and the candidate needs to invest in an aspect to be qualified in it. The presence of the signaling stage alters the mechanism by which the two-dimensional investment decision is made compared to the standard Coate–Loury case which corresponds to the signal-blind equilibria interpreted as the outcome under test-only admission, with implication on equilibrium multiplicity and welfare ranking. In particular, we find that the recruiting institution could benefit from the signaling option which leads to a more diversified skill profile but the candidate could be hurt from increased burden from costly investment and signaling even if his admission chance is improved.