The usual explanations for superstar effects---when a firm’s revenue is positive and convex in quality, and a few firms earn a large share of market revenue---are imperfect substitution between sellers, low marginal cost of output, and marginal cost declining as quality increases. Herein, a...

Akerlof (2012, 2013) has argued individuals often do not behave according to rational expectations. He shows how buyers in a complete lemon’s market are worse off if they behave irrationally---like loons. We examine several different lemon’s market situations (including when workers may...

More able individuals may over-investment in education when education signals ability. If education directly increases productivity, increasing education cost for the less able may increase welfare by reducing over-investment by the more able, but will not do so if such cost is already either...

Maybe. Lemon’s and signaling models generally deal with different welfare problems, the former with withdrawal of high quality sellers, and the latter with socially wasteful signals. However, with asymmetric information, high productivity workers may not (absent signaling) be employed where...

This paper explores the dilemma of choosing talent using NBA data from 1987-2003. We find that there is much uncertainty in selecting talent. If superstars are found they are usually identified early, however, more false positive exist than correct decisions with high draft picks. Our results...

In an influential article, “Unraveling in Matching Markets,” Li and Rosen (1998) note the first seven picks, and 17 among 29 first round selections of the 1997 NBA draft, were not college seniors. In 2004, the first pick in the NBA draft was a high school senior, and 25 of the first 29 picks...

Adam Smith’s proposal for paying professors was intended to induce increased faculty knowledge. If students have imperfect information about what they learn, and universities can only imperfectly measure the input of faculty time in student learning, publications may be used to measure faculty...

Following Rosen [1981], superstar effects (earnings convex in quality and a few firms reaping a large share of market earnings) occur with imperfect substitution between sellers, low (and possibly declining) marginal cost of output, and marginal cost falling as quality increases. However,...

The existing superstar model (Rosen 1981) does not require imperfect substitutes and explains the convexity of total earnings with respect to talent due to higher output for those with the most talent. We develop a model that explains why per unit earnings (wages or prices) would increase at an...