In a seminal 1981 paper, the economist Sherwin Rosen worked out the mathematics behind these “winner-take-all” markets. One of his key insights was to explicitly model talent—labeled, innocuously, with the variable q in his formulas—as a factor with “imperfect substitution,” which Rosen explains as follows: “Hearing a succession of mediocre singers does not add up to a single outstanding performance.”
There’s a premium to being the best
In other words, talent is not a commodity you can buy in bulk and combine to reach the needed levels: There’s a premium to being the best.
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