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Tournaments and Superstar models: A Mixture of two Pareto distributions

Michel Lubrano () and Abdoul Aziz Junior Ndoye
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Abdoul Aziz Junior Ndoye: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales

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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 U.S. from 1992 through 2009. We found 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 super-stars 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: Economie; quantitative (search for similar items in EconPapers)
Date: 2014
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Published in Bishop, J. and Rodríguez, J. G. Economic Well-Being and Inequality: Papers from the Fifth ECINEQ Meeting, 22, Emerald Group Publishing Limited, pp.449--479, 2014, Research on Economic Inequality, 978-1-78350-567-8

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