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Dynastic Management

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Author Info
Caselli, Francesco
Gennaioli, Nicola

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Abstract

Dynastic management is the inter-generational transmission of control over assets that is typical of family-owned firms. It is pervasive around the world, but especially in developing countries. We argue that dynastic management is a potential source of inefficiency: if the heir to the family firm has no talent for managerial decision-making, meritocracy fails. We present a simple model that studies the macroeconomic causes and consequences of this phenomenon. In our model, the incidence of dynastic management depends on the severity of asset-market imperfections, on the economy’s saving rate, and on the degree of inheritability of talent across generations. We therefore introduce novel channels through which financial-market failures and saving rates affect aggregate total factor productivity. Numerical simulations suggest that dynastic management may be a substantial contributor to observed cross-country differences in productivity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3767.

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Date of creation: Feb 2003
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Handle: RePEc:cpr:ceprdp:3767

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Related research
Keywords: family firms; financial development; growth; productivity;

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Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G30 - Financial Economics - - Corporate Finance and Governance - - - General
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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