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

Andrea Craig 1  and Marie-Louise Vierø 1
  • 1 Department of Economics, Queen’s University, 94 University Avenue, Kingston, ON K7L 3N6, Canada
Andrea Craig and Marie-Louise Vierø

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.

  • Besley, T., and M. Ghatak. 2005. “Competition and Incentives with Motivated Agents.” American Economic Review 95:61636.

    • Crossref
    • Google Scholar
    • Export Citation
  • Carayol, N. 2008. “An Economic Theory of Academic Competition: Dynamic Incentives and Endogenous Cumulative Advantages.” Conferences on New Political Economy 25:179203.

    • Crossref
    • Google Scholar
    • Export Citation
  • Carmichael, L. 1988. “Incentives in Academics: Why Is There Tenure?Journal of Political Economy 96:45372.

  • Cawley, J. 2009. “A Guide (and Advice) for Economists on the U. S. Junior Academic Job Market.” Working paper, Cornell University.

  • Chade, H., G. Lewis, and L. Smith. 2013. Student Portfolios and the College Admissions Problem. Working paper, SSRN.

    • Export Citation
  • Damiano, E., H. Li, and W. Suen. 2010. “First in Village or Second in Rome?International Economic Review 51:26388.

    • Crossref
    • Google Scholar
    • Export Citation
  • Damiano, E., H. Li, and W. Suen. 2012. “Competing for Talents.” Journal of Economic Theory 147:2190219.

  • Del Rey, E. 2001. “Teaching Versus Research: A Model of State University Competition.” Journal of Urban Economics 49:35673.

    • Crossref
    • Google Scholar
    • Export Citation
  • Epple, D., and R. E. Romano. 1998. “Competition between Private and Public Schools, Vouchers, and Peer-Group Effects.” American Economic Review 88:3362.

    • Google Scholar
    • Export Citation
  • Epple, D., R. E. Romano, and H. Sieg. 2006. “Admission, Tuition, and Financial Aid Policies in the Market for Higher Education.” Econometrica 74:885928.

    • Crossref
    • Google Scholar
    • Export Citation
  • Gale, D., and L. S. Shapley. 1962. “College Admissions and the Stability of Marriage.” American Mathematical Monthly 69:915.

    • Crossref
    • Google Scholar
    • Export Citation
  • Hansmann, H. 1986. “A Theory of Status Organizations.” Journal of Law, Economics, and Organization 2:11930.

    • Google Scholar
    • Export Citation
  • Hartwick, J. M., and Y. Kanemoto. 1984. Formation of Convoys, Tennis Ladders, Colleges and Related Groups. Economics Department Discussion Paper 589, Queen’s University.

    • Export Citation
  • Lach, S., and M. Schankerman. 2009. “Incentives and Invention in Universities.” RAND Journal of Economics 39:40333.

    • Crossref
    • Google Scholar
    • Export Citation
  • Lazear, E. P. 1997. “Incentives in Basic Research.” Journal of Labor Economics 15:S16797.

  • Lazear, E. P. 2001. “Educational Production.” Quarterly Journal of Economics 116:777803.

  • Ortmann, A., and R. Squire. 2000. “A Game-Theoretic Explanation of the Administrative Latticein Institutions of Higher Learning.” Journal of Economic Behavior & Organization 43:37791.

    • Crossref
    • Google Scholar
    • Export Citation
  • Postlewaite, A. 1998. “The Social Basis of Interdependent Preferences.” European Economic Review 42:779800.

    • Crossref
    • Google Scholar
    • Export Citation
  • Prüfer, J., and U. Walz. 2011. “Academic Faculty Governance and Recruitment Decisions.” Public Choice 153:50729.

    • Google Scholar
    • Export Citation
  • Sacerdote, B. 2001. “Peer Effects with Random Assignment: Results for Dartmouth Roommates.” Quarterly Journal of Economics 116:681704.

    • Crossref
    • Google Scholar
    • Export Citation
  • Sarpca, S. 2010. “Multidimensional Skills, Specialization, and Oligopolistic Competition in Higher Education.” Journal of Public Economics 94:80011.

    • Crossref
    • Google Scholar
    • Export Citation
  • Stokey, N. L., and R. E. Lucas. 1989. Recursive Methods in Economic Dynamics. Cambridge, Massachusetts: Harvard University Press.

    • Crossref
    • Google Scholar
    • Export Citation
Purchase article
Get instant unlimited access to the article.
$42.00
Log in
Already have access? Please log in.


or
Log in with your institution

Journal + Issues

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.

Search