Money, fame and the allocation of talent: Brain drain and the institution of science

The earning structure in science is flatter than in the private sector, which could cause a brain drain toward the latter. This paper studies the allocation of talent between both sectors when agents value money and fame. Assuming that the intrinsic performance is a less noisy signal of talent in science than in the private sector, we show that a good institution of science mitigates the brain drain and that introducing extra monetary incentives through the market might induce excessive diversion from pure to applied research. We finally show the optimality of a relatively flat earning structure in science.