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Dynastic Management

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  • FRANCESCO CASELLI
  • NICOLA GENNAIOLI

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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Suggested Citation

  • Francesco Caselli & Nicola Gennaioli, 2013. "Dynastic Management," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 971-996, January.
    • Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:971-996
    DOI: j.1465-7295.2012.00467.x
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    JEL classification:

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

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