Talent and Reward

by on July 17, 2006 at 3:00 pm in Economics | Permalink

Brad DeLong writes:

…the lucky or talented or workaholic today can, thanks to revolutions
in computer and communications technology, leverage their
symbolic-analyst skills over a much larger base of routine
manufacturing, marketing, and distribution workers than they could have
a generation ago. In this model, we have become much more of a "winner take all" economy than we used to be. Much more income is distributed in the form of winner-take-all tournaments than used to be the case.

My first reaction is that this is possible, but unproven. My second
reaction depends on whether victory in the winner-take-all tournaments
is due to luck, talent, or industriousness.

I would add this, it’s going to be very difficult to tell.  In a winner take all economy where talents are leveraged over a much larger base, small differences in talent are worth much more.  A 1% improvement in a firm with revenues of 1 million is worth a lot less than a 1% improvement in a firm with revenues of 1 billion.  Even more, if 1% greater talent is what separates Amazon from SuperBookDeals then the rewards to the founder of the former will be higher than that of the latter by much more than 1%.

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