Revenue diversion, the allocation of talent, and income distribution

Jess Benhabib and Mildred Hager

Mathematical Social Sciences, 2021, vol. 112, issue C, 138-144

Abstract: We study an equilibrium model of “revenue diversion” by management and its effects on talent allocation and the earnings distribution. In our occupational choice model with “workers” and “managers”, the talent allocation depends on earnings across occupations. Revenue diversion makes the allocation inefficient. It contributes, beyond productivity differentials, to income inequality and the Pareto tail of the income distribution. Any “diverted” revenue accrues to a small fraction of the population, and therefore noticeably impacts inequality, as illustrated in our calibration. We briefly introduce capital, allowing management to divert from both workers and capital, and also complementarity between workers and management.

Keywords: Revenue diversion; Income inequality; Occupational choice (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:112:y:2021:i:c:p:138-144

DOI: 10.1016/j.mathsocsci.2021.03.017

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