The Distribution of Talent and the Pattern and Consequences of International Trade
AbstractIn an economy with imperfect labor contracts, differences in the distribution of talent can be an independent source of comparative advantage. I study a world economy with two activities, one in which an individual's contribution to production can be measured accurately and another in which workers engage in joint production. When individuals have private information about their own talents, the most able workers self-select into the occupation in which their reward best reflects their own performance. I describe an equilibrium in which the country with a more heterogeneous labor force exports the good that is produced by the most talented individuals. In this country, trade exacerbates the "polarization" of labor and often worsens the distribution of income.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 745.
Date of creation: 2002
Date of revision:
labor contracts; diversity; joint production; comparative advantage; income distribution;
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