The optimal assignment of workers to tasks is determined, and used to explore the impact of information quality on the equilibrium level of output, wages, and degree of specialization. The theory presented in this paper studies sequential accumulation of information about workers' skills. The model has implications for steady state life cycle growth and the size distribution of labor income. This paper provides analysis of an occupation in which there is substantial uncertainty about individual performance, and past performance is correlated with future outcomes. In equilibrium, only the young enter the occupation and only the successful stay on.
Success is rare and rewarded highly.
The implied distribution of earnings must have positive skewness. This paper studies a competitive industry in which technology improves by both innovation and imitation. The model identifies firms that rely on innovation as technological leaders, and those relying on imitation, as laggards. Both innovation and imitation cause the industry output to expand and price to fall. However, the equilibrium involves too little innovative and imitative effort as compared to the socially optimal level.