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Superstars and Mediocrities: Market Failure in the Discovery of Talent -super-1

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  • Marko Tervi�
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    Abstract

    A basic problem facing most labour markets is that workers can neither commit to long-term wage contracts nor can they self-finance the costs of production. I study the effects of these imperfections when talent is industry-specific; it can only be revealed on the job, and once learnt becomes public information. I show that firms bid excessively for the pool of incumbent workers at the expense of trying out new talent. The workforce is then plagued with an unfavourable selection of individuals: there are too many mediocre workers, whose talent is not high enough to justify them crowding out novice workers with lower expected talent but with more upside potential. The result is an inefficiently low level of output coupled with higher wages for known high talents. This problem is most severe where information about talent is initially very imprecise and the complementary costs of production are high. I argue that high incomes in professions such as entertainment, management, and entrepreneurship, may be explained by the nature of the talent revelation process, rather than by an underlying scarcity of talent. Copyright , Wiley-Blackwell.

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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2008.00522.x
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 76 (2009)
    Issue (Month): 2 ()
    Pages: 829-850

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    Handle: RePEc:oup:restud:v:76:y:2009:i:2:p:829-850

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    Cited by:
    1. Florian Schuett & Amedeo Piolatto, 2011. "A model of music piracy with popularity-dependent copying costs," Working Papers. Serie AD 2011-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2011. "Optimal Coexistence of Long-term and Short-term contracts in Labor Markets," UFAE and IAE Working Papers 872.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    3. John P. Conley & Ali Sina Onder & Benno Torgler, 2012. "Are all High-Skilled Cohorts Created Equal? Unemployment, Gender, and Research Productivity," CREMA Working Paper Series 2012-15, Center for Research in Economics, Management and the Arts (CREMA).
    4. Francisco Alcalá & Miguel González-Maestre, 2009. "Copying, Superstars, and Artistic Creation," Working Papers 0902, International Economics Institute, University of Valencia.
    5. Massa, Massimo & Reuter, Jonathan & Zitzewitz, Eric, 2010. "When should firms share credit with employees? Evidence from anonymously managed mutual funds," Journal of Financial Economics, Elsevier, vol. 95(3), pages 400-424, March.

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