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Tournaments and Superstar Models: A Mixture of Two Pareto Distributions

In: Economic Well-Being and Inequality: Papers from the Fifth ECINEQ Meeting

Author

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  • Abdoul Aziz Ndoye
  • Michel Lubrano

Abstract

We provide a Bayesian inference for a mixture of two Pareto distributions which is then used to approximate the upper tail of a wage distribution. The model is applied to the data from the CPS Outgoing Rotation Group to analyze the recent structure of top wages in the United States from 1992 through 2009. We find an enormous earnings inequality between the very highest wage earners (the “superstars”), and the other high wage earners. These findings are largely in accordance with the alternative explanations combining the model of superstars and the model of tournaments in hierarchical organization structure. The approach can be used to analyze the recent pay gaps among top executives in large firms so as to exhibit the “superstar” effect.

Suggested Citation

  • Abdoul Aziz Ndoye & Michel Lubrano, 2014. "Tournaments and Superstar Models: A Mixture of Two Pareto Distributions," Research on Economic Inequality, in: Economic Well-Being and Inequality: Papers from the Fifth ECINEQ Meeting, volume 22, pages 449-479, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:reinzz:s1049-258520140000022015
    DOI: 10.1108/S1049-258520140000022015
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    Citations

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    Cited by:

    1. Michel Lubrano & Zhou Xun, 2021. "The Bayesian approach to poverty measurement," AMSE Working Papers 2133, Aix-Marseille School of Economics, France.
    2. Edwin Fourrier-Nicolaï & Michel Lubrano, 2020. "Bayesian inference for TIP curves: an application to child poverty in Germany," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(1), pages 91-111, March.
    3. Majda Benzidia & Michel Lubrano, 2016. "A Bayesian Look at American Academic Wages: The Case of Michigan State University," AMSE Working Papers 1628, Aix-Marseille School of Economics, France.
    4. Majda Benzidia & Michel Lubrano, 2020. "A Bayesian look at American academic wages: From wage dispersion to wage compression," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(2), pages 213-238, June.
    5. Kotrba, Vojtěch, 2019. "Direct preferences of sports fans: Is there a superstar effect in the fantasy league?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 78(C), pages 89-97.

    More about this item

    Keywords

    Pareto distribution; superstars; tournament theory; wage inequality; D03; D33; D41; J31; J33;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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