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

Author

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  • Craig Andrea

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

  • 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
    DOI: 10.1515/bejte-2013-0071
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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.
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    8. Dennis Epple & Richard Romano & Holger Sieg, 2006. "Admission, Tuition, and Financial Aid Policies in the Market for Higher Education," Econometrica, Econometric Society, vol. 74(4), pages 885-928, July.
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    Cited by:

    1. Dirk Bergemann & Marco Ottaviani, 2021. "Information Markets and Nonmarkets," Cowles Foundation Discussion Papers 2296, Cowles Foundation for Research in Economics, Yale University.

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    More about this item

    Keywords

    sorting; universities; researchers; academia; ranking; peer effects;
    All these keywords.

    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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