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

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  • Craig Andrea

    ()

  • Vierø Marie-Louise

    () (Department of Economics, Queen’s University, 94 University Avenue, Kingston, ON K7L 3N6, Canada)

Abstract

This article 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.

Suggested Citation

  • Craig Andrea & Vierø Marie-Louise, 2013. "Academia or the Private Sector? Sorting of Agents into Institutions and an Outside Sector," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 303-345, December.
    • Handle: RePEc:bpj:bejtec:v:13:y:2013:i:1:p:303-345:n:17
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    References listed on IDEAS

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    1. Lazear, Edward P, 1997. "Incentives in Basic Research," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 167-197, January.
    2. Ettore Damiano & Hao Li & Wing Suen, 2010. "First In Village Or Second In Rome?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 263-288, February.
    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. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    6. Rey, Elena Del, 2001. "Teaching versus Research: A Model of State University Competition," Journal of Urban Economics, Elsevier, vol. 49(2), pages 356-373, March.
    7. Hansmann, Henry, 1986. "A Theory of Status Organizations," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 119-130, Spring.
    8. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-472, June.
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    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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