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Why Do Spanish Nerds Not Go on Erasmus? Uncertainty, Grades, and the Adverse Selection of Erasmus Students

Diego Varela

Erasmus scholarships are generally allocated on the basis of academic merit, and yet there is a growing perception in some countries such as Spain that beneficiaries are worse students than average. I explain this paradox by arguing there is an adverse self-selection of applicants caused by the increased information asymmetry between students and teachers that study-abroad programmes entail. This demand-driven selection bias will be more apparent in countries where Erasmus is widely available, thereby reducing the impact of any merit-based supply-side selection. Faced with uncertainty about the performance of a given mobile student, teachers may tend to base their grades on the average performance of mobile students. This will (1) reduce the relationship between academic ability and the final GPA, and (2) discourage good students from participating. I find empirical support for both hypotheses by means of a Heckman endogenous switching regime model, using data from the academic records of 400 graduates from a Spanish university, including 68 Erasmus students. I discuss possible solutions, such as awarding differentiated degrees to participating students.

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