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Tournaments and Superstar Models: A Mixture of Two Pareto Distributions

Abdoul Aziz Ndoye and Michel Lubrano ()

A chapter in Economic Well-Being and Inequality: Papers from the Fifth ECINEQ Meeting, 2014, vol. 22, pp 449-479 from Emerald Publishing Ltd

Abstract: 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.

Keywords: Pareto distribution; superstars; tournament theory; wage inequality; D03; D33; D41; J31; J33 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Tournaments and Superstar models: A Mixture of two Pareto distributions (2014)
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