Abstract
This paper presents a sorting model of education in which individuals are tested in school. By assuming that higher-ability individuals are more likely to succeed on a given test, one can construct a sorting model of education that does not hinge on the more able having lower nonpecuniary costs of schooling. Nash equilibria always exist in this model (even with a continuum of types of individuals); however, some are "unreasonable." To eliminate these unreasonable Nash equilibria, more restrictive definitions of equilibrium are proposed. I also show that when schooling affects productivity--and therefore a worker's probability of passing the test--a sorting equilibrium may be characterized by too little investment in education.
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