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Academia or the Private Sector? Sorting of Agents into Institutions and an Outside Sector

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  • Andrea Craig

    ()
    (Queen's University)

  • Marie-Louise Vierø

    ()
    (Queen's University)

Abstract

This paper develops an equilibrium sorting model with utility maximizing agents (researchers) on one side of the market, and on the other side institutions (universities) and an outside sector. Researchers are assumed to care about peer effects, their relative status within universities, and salary compensation. They differ in their concern for salary compensation as well as in their ability. We derive the unique stable equilibrium allocation of researchers and investigate the effects on the academic sector of changes in the outside option as well as the interaction between the outside option and the researchers' concern for relative status. In any equilibrium, the right hand side of the ability distribution is allocated to the academic sector, while the left hand side of the ability distribution is allocated to the outside sector, with possible overlap between sectors and within the academic sector. The universities' qualities are determined endogenously, and we show that an increase in the value of the outside option decreases the difference in quality between the higher and lower ranked universities. Furthermore, differences in average salaries between the institutions arise endogenously.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1198.pdf
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1198.

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Length: 40 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:qed:wpaper:1198

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Keywords: Sorting; Universities; Researchers; Academia; Ranking; Peer effects;

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  1. DEL REY, Elena, . "Teaching versus research: a model of state university competition," CORE Discussion Papers RP -1501, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Edward P. Lazear, 1996. "Incentives in Basic Research," NBER Working Papers 5444, National Bureau of Economic Research, Inc.
  3. Ortmann, Andreas & Squire, Richard, 2000. "A game-theoretic explanation of the administrative lattice in institutions of higher learning," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 377-391, November.
  4. Nicolas Carayol, 2008. "An Economic Theory of Academic Competition: Dynamic Incentives and Endogenous Cumulative Advantages," Conferences on New Political Economy, in: Max Albert & Stefan Voigt & Dieter Schmidtchen (ed.), Conferences on New Political Economy, edition 1, volume 25, pages 179-203(2 Mohr Siebeck, Tübingen.
  5. Ettore Damiano & Hao Li & Wing Suen, 2004. "First in Village or Second in Rome," Working Papers tecipa-221, University of Toronto, Department of Economics.
  6. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-72, June.
  7. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
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