TLIM · Talent and Learning in Imperfect Markets

The overall effectiveness at which the underlying talent resources in an economy are utilized is an important determinant of long-run economic growth and well-being. Recent work has shown that the processes through which talent is discovered and revealed in the economy are likely to suffer from market imperfections that are analogous to problems that have been for long been understood in the context of private provision of job training and education, resulting in not just reduced economic efficiency but also contributing to income inequality. The first basic question is what is the role of talent rents in explaining income inequality? In a static world where all information about talent is known, such talent rents would merely be compensation to a scarce factor of production. However, when the discovery of talent is subject to market imperfections then income differences that ostensibly look like talent rents are partly due to inefficient information rents. This raises the second and novel question, about whether and to what extent observed income differences are due to inefficient rents to information about talent that masquerade as talent rents. I also plan to investigate how technological change has impacted the distribution of talent rents via its effect on the discovery/revelation process of talent. The larger goal of the project is to help understand the economy-wide implications of institutions and policies that govern the discovery and allocation of talent in the economy. Better understanding could also point the way towards improved policy interventions.