The O-ring Theory of Economic Development

Based on Economic Development, Chapter 4, Section 4.5

[@thomasbao4477]

Thank you for the concise summary of O-ring theory! It seems trivial to assume output is a multiplicative product of factor inputs, but there are so many non-intuitive, empirically verifiable conclusions.

[@thomasbao4477]

I actually searched for empirical studies, and could not find that many. I think one interesting study might be to look at software engineering compensation in silicon valley. You could get panel data from new graduates, and get their offer packages (anonymized of course). You could then create an implied ranking of quality of each candidate and selectivity of each company, perhaps by using elo scores on matches. If company Y gives an offer to person X, you can say person X wins elo and company Y loses elo, and so forth. (note that the order of matches will affect the final elo rating, but you can randomize the order a few times to see how sensitive it is). Then you could see if selectivity correlates positively with total compensation and if higher elo employees join higher elo companies

[@thedotnote502]

That's really helpful for me ☺ Thank u sir ☺