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Dynastic Management

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Author Info
Francesco Caselli
Nicola Gennaioli

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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 macreconomic 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9442.

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Date of creation: Jan 2003
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Handle: RePEc:nbr:nberwo:9442

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E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment

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