As someone who spends a not insignificant portion of my time thinking about resource allocation, I consider myself lucky to have come across the idea of professors asking students to pay a fee to receive letters of recommendation. This idea intrigues me as it presents an interesting case with which to explore the dynamics of administrative and market approaches to resource allocation. As such, I decided to ask the question: “Is there a place for the market approach when it comes to allocating letters of recommendation?”

The letter of recommendation system

A letter of recommendation is a formal document that addresses an applicant’s suitability and qualifications for a particular position. It serves to corroborate the application and lend credibility to the applicant. The prevalent letter of recommendation system involves letters being sent directly to the requestor without being seen by the applicant. This is perhaps aimed at minimising any incentive recommendation writers may have to be dishonest as well as reducing the chance that requestors receive letters that have been altered or tampered with.

The standard approach for issuing letters of recommendation is an administrative one as recommendation writers typically reserve the authority to decide which applicants to recommend and which not to. This stands in contrast to a market approach in which willing applicants and willing writers rely on the price mechanism to decide who receives letters and who does not.

At first glance, a market approach seems incapable of functioning efficiently within this context and indeed, it is easy to show that significant adoption of a market approach to allocating letters of recommendation quickly results in market failure. Nonetheless, issues associated with the standard administrative approach could make market allocation worth considering, at least in theory.

Administrative vs market allocation

The administrative approach has the benefit of aligning with the goal of lending credibility to the applicant. It does this through the idea that the writer, who has discretion to award letters, would only do so to deserving candidates. This idea is reinforced by externalities that exist between any one letter and all other letters from the same writer – unreliable letters could negatively impact the effectiveness of future letters and vice versa. On the other hand, since writers have allocative authority, they may issue letters based on any criteria they decide, whether or not such criteria would be viewed as reasonable by a prudent person. Likewise, they may use their authority as a tool for control or manipulation.

The main benefit of the market approach is the provision of economic incentives to writers. These may not just positively influence the willingness of writers to accept recommendation requests from applicants but also the likelihood that they follow through with submitting their letters even when the process includes work they may consider tedious. The likely structure of the market, however, suggests some downsides. Even with many writers for applicants to potentially choose from, writers may have market power as a result of differentiation. This could spell higher prices and restricted supply which could leave some applicants without letters. These applicants would be worse off if they would have received letters under the administrative approach. Also, the likelihood that some of these applicants fail to receive letters on the basis of lack of ability to pay raises concerns about inequitable distribution. In addition, even applicants who receive letters may be worse off if they view the market prices they have to pay as less preferable to meeting the criteria for allocation under the administrative approach.

There are also issues that result from information asymmetry. Some writers find themselves in better positions to write strong letters for certain applicants and it is reasonable to assume that applicants would not be willing to pay the same price for weak letters as they would for strong ones. Problems potentially arise when applicants are not able to determine the quality of the letter they would receive before paying. Besides, the applicants have to factor in the moral hazard that arises from the writer being able to choose the quality of letter they submit. This likely results in strong letters being driven out of the market by weak ones.

Furthermore, the incentive for writers to allocate letters to the highest bidders opposes the discretion that served as the basis for the role of letters of recommendation in lending credibility to applicants, basically nullifying the very purpose of the letter.

Conclusion

While the standard administrative approach to allocating letters of recommendation has its drawbacks, I still believe it to be preferable to market allocation. A market approach would be misaligned with the core aim of the letters of recommendation system. Moreover, it would likely bring about inefficient outcomes as a result of market structure and information asymmetry.

Sources

1. Reference and Recommendation Letters | Career Planning Service. (n.d.). McGill University. Retrieved July 7, 2026, from https://www.mcgill.ca/caps/students/gradschool/references
2. Subudhi, S. (2026, June 16). What Is a Letter of Recommendation? (Benefits and Example). Indeed. Retrieved July 7, 2026, from https://www.indeed.com/career-advice/finding-a-job/what-is-a-letter-of-recommendation

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Author: Ugonna Onyemere