Yegorov, Y., Wirl, F., Grass, D., Eigruber, M., & Feichtinger, G. (2022). On the matthew effect on individual investments in skills in arts, sports and science. Journal of Economic Behavior and Organization, 196, 178–199. https://doi.org/10.1016/j.jebo.2022.02.008
E105 - Institut für Stochastik und Wirtschaftsmathematik E330-04 - Forschungsbereich Finanzwirtschaft und Controlling
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Journal:
Journal of Economic Behavior and Organization
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ISSN:
0167-2681
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Date (published):
19-Feb-2022
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Number of Pages:
22
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Publisher:
ELSEVIER
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Peer reviewed:
Yes
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Keywords:
Abnormal control problem; Convex returns; Human capital accumulation; Matthew effect; Sisyphus point; Threshold
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Abstract:
This paper describes the process of capital accumulation subject to the following characteristics: (i) convex returns to (human) capital and (ii) the need to self-finance investments. Our setup is applicable to some peculiarities in the arts, sports and science, inter alia, coined the Matthew effect in Merton (1968) and explains, e.g., why prominent researchers get disproportional credit for their work. The potential young artist's (athlete's or scientist's) optimal strategies include quitting, or continuing and even expanding one's human capital in the respective profession. Both outcomes are separated by a threshold level in human capital. In addition, we find that it can be optimal to stay in business although consumption falls and stays at the subsistence level forever (we call this outcome a Sisyphus point). This possibility is also interesting from a theoretical point-of-view, as the optimal control problem may turn abnormal, i.e., the objective does not enter the Hamiltonian.
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Additional information:
The Journal of Economic Behavior and Organization is devoted to theoretical and empirical research concerning economic decision, organization and behavior and to economic change in all its aspects.