Choosing the Right Pond: Social Approval and Occupational Choice
We model the endogenous emergence of social perceptions about occupations and their impact on occupational choice. In particular, an individual's social approval increases with his community's perception of his skill in his chosen career. These perceptions vary across communities because individuals better assess the skill of those in occupations similar to their own. Such imperfect assessment can distort choices away from comparative advantage. When skill distributions differ across occupations and/or correlate positively, the community perceives one occupation more favorably. This favored sector experiences overcrowding, but misallocation occurs across both sectors. Furthermore, a positive skill correlation can produce multiple steady states.
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