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Dynastic management

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  • Francesco Caselli
  • Nicola Gennaioli

Abstract

The most striking difference in corporate-governance arrangements between rich and poor countries is that the latter rely much more heavily on the dynastic family firm, where ownership and control are passed on from one generation to the other. We argue that if the heir to the family firm has no talent for managerial decision making, dynastic management is a failure of meritocracy that reduces a firm’s Total Factor Productivity. We present a simple model that studies the macreconomic causes and consequences of dynastic management. In our model, the incidence of dynastic management depends, among other factors, on the imperfections of contractual enforcement. A plausible calibration suggests that, via dynastic management, poor contract enforcement may be a substantial contributor to observed crosscountry differences in aggregate Total Factor Productivity.

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File URL: http://eprints.lse.ac.uk/3558/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 3558.

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Length: 46 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:ehl:lserod:3558

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Keywords: Meritocracy; Family firms; Financial Development; TFP;

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References

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