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Distortions, Endogenous Managerial Skills and Productivity Differences

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  • Bhattacharya, Dhritiman

    ()
    (EQUIFAX)

  • Guner, Nezih

    ()
    (MOVE, Barcelona)

  • Ventura, Gustavo

    ()
    (Arizona State University)

Abstract

We develop a span-of-control model where managerial skills are endogenous and the outcome of investments over the life cycle of managers. We calibrate this model to U.S plant-size data to quantify the effects of distortions that are correlated with the size of production units. These distortions lead to sharp reductions in plant productivity and the fraction of employment in large plants, with a quantitatively important role for managerial investments. We find that the model can account quite well for properties of Japanese size-distribution data, with a model-implied TFP of about 83% of the U.S. Distortions are critical in accounting for the differences in size distribution between the U.S. and Japan.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5963.

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Length: 33 pages
Date of creation: Sep 2011
Date of revision:
Publication status: published in: Review of Economic Dynamics, 2103, 16(1), 11-25.
Handle: RePEc:iza:izadps:dp5963

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Keywords: skill investments; size; distortions; productivity differences;

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Cited by:
  1. Chang-Tai Hsieh & Peter J. Klenow, 2012. "The Life Cycle of Plants in India and Mexico," NBER Working Papers 18133, National Bureau of Economic Research, Inc.
  2. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.

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