Revenue diversion, the allocation of talent, and income distribution

Jess Benhabib, Mildred Hager

    Research output: Contribution to journalArticlepeer-review


    We study an equilibrium model of “revenue diversion” by management and its effects on talent allocation and the earnings distribution. In our occupational choice model with “workers” and “managers”, the talent allocation depends on earnings across occupations. Revenue diversion makes the allocation inefficient. It contributes, beyond productivity differentials, to income inequality and the Pareto tail of the income distribution. Any “diverted” revenue accrues to a small fraction of the population, and therefore noticeably impacts inequality, as illustrated in our calibration. We briefly introduce capital, allowing management to divert from both workers and capital, and also complementarity between workers and management.

    Original languageEnglish (US)
    Pages (from-to)138-144
    Number of pages7
    JournalMathematical social sciences
    StatePublished - Jul 2021


    • Income inequality
    • Occupational choice
    • Revenue diversion

    ASJC Scopus subject areas

    • Sociology and Political Science
    • General Social Sciences
    • General Psychology
    • Statistics, Probability and Uncertainty


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