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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. Sari Pekkala Kerr & William R. Kerr & William F. Lincoln, 2014. "Firms and the Economics of Skilled Immigration," NBER Working Papers 20069, National Bureau of Economic Research, Inc.
    2. Amedeo Piolatto & Florian Schuett, 2011. "A model of music piracy with popularity-dependent copying costs," Working Papers 2011/5, Institut d'Economia de Barcelona (IEB).
    3. Inés Macho-Stadler & David Pérez-Castrillo & Nicolés Porteiro, 2011. "Optimal Coexistence of Long-Term and Short-Term Contracts in Labor Markets," Working Papers 557, Barcelona Graduate School of Economics.
    4. John P. Conley & Ali Sina Önder & Benno Torgler, 2012. "Are all High-Skilled Cohorts Created Equal? Unemployment, Gender, and Research Productivity," Working Papers 2012.86, Fondazione Eni Enrico Mattei.
    5. Joel Waldfogel, 2014. "Digitization and the Quality of New Media Products: The Case of Music," NBER Chapters, in: Economics of Digitization National Bureau of Economic Research, Inc.
    6. 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.
    7. Sari Pekkala Kerr & William R. Kerr & William F. Lincoln, 2013. "Skilled Immigration and the Employment Structures of U.S. Firms," Harvard Business School Working Papers 14-040, Harvard Business School.
    8. Alcalá, Francisco & Gonzalez-Maestre, Miguel, 2009. "Copying, superstars and artistic creation," UMUFAE Economics Working Papers 5606, DIGITUM. Universidad de Murcia.
    9. Peter A. Groothuis & Kurt W. Rotthoff & Mark C. Strazicich, 2013. "Evaluation of Talent in a Changing World: The Case of Major League Baseball," Working Papers 13-15, Department of Economics, Appalachian State University.

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