Jan 22, 2014

Economics of rankings

Entrepreneur Magazine
Let's consider rankings and economic development. In The US they seem to be obsessed with rankings: the fattest cities, the fittest cities, the best colleges, the best business schools, the top authors, the best sellers, the top 10 burgers in America, the top 250 beers, the best "Breaking Bad" episodes . . . you get the idea. There are even rankings of rankings. Probably the origin of rankings is to be found in military history

Rankings reflect a type of I-am-better-than-you attitude and I-will-work-harder-to-improve-my-position kind of response. Competition is at their core. Some rankings are better than others, of course, and they foster behavioural changes, like the Mayor of Oklahoma City who claims that by looking at a ranking he realised that the City was among the fattest in the US and started a campaign to promote exercise and healthy living. 

But rankings hardly exist in developing countries. Rankings and information transparency move in tandem. And the question is why there are so few rankings in those countries. For starters there is the I-am-especial-and-don't-need-to-be-ranked type of attitude. But from an economic point of view we can look at rankings as we look at any other commodity, with the lenses of supply and demand. This graph illustrates the idea:

For rankings too there are determinants of the supply and the demand. For a developing country we have:
Determinants of the supply:
  • Very few entrepreneurs have identified the business opportunity. Yes, creating rankings is usually profit-driven. US News for example makes public the very top universities but sells the whole list, in some instances.
  • Low transparency and a secretive culture.
  • A culture that rejects competition.
Determinants of the demand:
  • Low income.
  • Low literacy and education.
  • Low Internet access.
I believe (like my friend @camendoza72) that we need more rankings in developing countries. To be fair however there is research that finds little relationship between rankings (measure as selectivity) and certain types of knowledge in college education. And there is also the risk of fraud

As economies evolve we should see more rankings, users ranking producers and producers ranking users, and that will be a good thing. 

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