The Economics of Superstars by Sherwin Rosen discusses the phenomenon of "superstars" — individuals who earn disproportionately high incomes and dominate their fields. This phenomenon is not merely a result of inflation but reflects deeper economic realities. In various fields such as entertainment, sports, and academia, a small number of individuals earn significantly more than others, with income distributions skewed towards the top. This is due to factors like the ability to attract large audiences, the concentration of output among a few individuals, and the high rewards at the top. Rosen analyzes this phenomenon through an economic lens, using a special type of assignment problem where buyers are matched with sellers. He introduces a model where the distribution of talent is fixed and observable, and the price of a service is determined by the seller's talent and market size. The model shows that the distribution of income is stretched out in its right-hand tail compared to the distribution of talent, leading to a convexity in the function of rewards. This convexity implies that small differences in talent are magnified in earnings, leading to a skewed income distribution. Rosen also discusses the role of imperfect substitution among different sellers, which is a hallmark of activities where superstars are common. This imperfect substitution leads to convexity in returns and a skewed distribution of earnings. Additionally, he argues that the concentration of output on a few sellers is best explained by technology rather than by preferences. The technology allows for joint consumption, similar to a public good, where the cost of production does not rise proportionally with the size of the market. The paper concludes that the phenomenon of superstars is a result of both the structure of the market and the technology used in the production of services. The analysis shows that the distribution of income is skewed due to the convexity of the reward function, which is influenced by the concentration of talent and the size of the market. The paper provides a framework for understanding the economic implications of this phenomenon and its relevance to various industries.The Economics of Superstars by Sherwin Rosen discusses the phenomenon of "superstars" — individuals who earn disproportionately high incomes and dominate their fields. This phenomenon is not merely a result of inflation but reflects deeper economic realities. In various fields such as entertainment, sports, and academia, a small number of individuals earn significantly more than others, with income distributions skewed towards the top. This is due to factors like the ability to attract large audiences, the concentration of output among a few individuals, and the high rewards at the top. Rosen analyzes this phenomenon through an economic lens, using a special type of assignment problem where buyers are matched with sellers. He introduces a model where the distribution of talent is fixed and observable, and the price of a service is determined by the seller's talent and market size. The model shows that the distribution of income is stretched out in its right-hand tail compared to the distribution of talent, leading to a convexity in the function of rewards. This convexity implies that small differences in talent are magnified in earnings, leading to a skewed income distribution. Rosen also discusses the role of imperfect substitution among different sellers, which is a hallmark of activities where superstars are common. This imperfect substitution leads to convexity in returns and a skewed distribution of earnings. Additionally, he argues that the concentration of output on a few sellers is best explained by technology rather than by preferences. The technology allows for joint consumption, similar to a public good, where the cost of production does not rise proportionally with the size of the market. The paper concludes that the phenomenon of superstars is a result of both the structure of the market and the technology used in the production of services. The analysis shows that the distribution of income is skewed due to the convexity of the reward function, which is influenced by the concentration of talent and the size of the market. The paper provides a framework for understanding the economic implications of this phenomenon and its relevance to various industries.