Mikkel Gandil and Edwin Leuven
This paper examines how performance-based funding incentives influence college admission decisions in dual-track systems where programs admit students based on either grades or holistic assessment. Using Danish administrative data and regression discontinuity methods, we find that programs respond effectively to funding incentives by equalizing marginal completion rates across admission tracks. A reform removing restrictions on holistic admissions confirms this -- previously constrained programs exhibit completion rate gaps across tracks that close once allowed to optimize freely. However, this institutional optimization comes at a broader social cost -- rejected holistic applicants are 6.4 percentage points less likely to complete higher education elsewhere. The largest potential social gains from expanding holistic admissions are in selective programs and those currently making least use of this track. The benefits of holistic admissions arise mainly through advantageous self-selection of higher-potential students, with little additional screening benefit.