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In the Wrong Hands: Complementarities, Resource Allocation, and Aggregate TFP

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  • Simeon Alder

    (UCLA)

Abstract

I explore mismatch between firm quality and firm management as a mechanism for variations in total factor productivity (TFP) across countries. In my calibrated model, even minor deviations from efficient (assortative) matching have sizeable effects on output and productivity. Underlying this result is the finding that the aggregate implications of matching frictions are highly sensitive to the degree of complementarity between firm and manager attributes. In addition, the relative dispersion of firm and managerial attributes is also key to quantifying the aggregate effects of matching frictions. The key model parameters are pinned down by calibrating the model to U.S. observations on the firm-size distribution and the level and distribution of managerial compensation. My results imply that "crony capitalism", where key managerial positions are allocated on the basis of political connections rather than talent, imposes a substantial burden on economic welfare.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1265.

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Date of creation: 2009
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Handle: RePEc:red:sed009:1265

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  1. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
  2. Arilton Teixeira & Berthold Herrendorf, 2009. "Barriers to Entry and Development," Fucape Working Papers 22, Fucape Business School.
  3. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
  4. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the Rearview Mirror," NBER Working Papers 11008, National Bureau of Economic Research, Inc.
  5. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  6. David N. DeJong & Chetan Dave, 2007. "Introduction to Structural Macroeconometrics
    [Structural Macroeconometrics]
    ," Introductory Chapters, Princeton University Press.
  7. Lucian Bebchuk & Alma Cohen, 2004. "The Costs of Entrenched Boards," NBER Working Papers 10587, National Bureau of Economic Research, Inc.
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Cited by:
  1. Michael Waugh & David Lagakos, 2009. "Specialization, Economic Development and Aggregate Productivity Differences," 2009 Meeting Papers 1248, Society for Economic Dynamics.

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