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.
Carayol, N.2008. “An Economic Theory of Academic Competition: Dynamic Incentives and Endogenous Cumulative Advantages.” Conferences on New Political Economy25:179–203.10.1628/186183408785112340)| false
Ortmann, A., and R.Squire. 2000. “A Game-Theoretic Explanation of the Administrative Latticein Institutions of Higher Learning.” Journal of Economic Behavior & Organization43:377–91.10.1016/S0167-2681(00)00121-9)| false
The B.E. Journal of Theoretical Economics (BEJTE) is a leading venue for top-notch economic theory, both pure and applied. Topics include contract theory, decision theory, game theory, general equilibrium theory, and mechanism design both pure and applied to such areas as industrial organization, public finance, labor and law and economics.