Psychic Payoffs, Overpriced Assets, and Underpaid Superstars

Summary Non‐pecuniary payoff is a significant component of the rewards to workers – artists, academics, and sports people – and to investments in assets, such as paintings. This paper explores the implications of partial input payment via psychic rewards under a range of assumptions concerning mobility and homogeneity of factors in markets for both labor and capital. Depending on these assumptions, we show systematic underpayment of inputs in some situations and overpayment in others. Particular attention is paid to the earnings of superstars. The paper is illustrated throughout by references to labor and capital employed by firms in the arts and in sport.