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Distortions, Endogenous Managerial Skills and Productivity Differences

  • Dhritman Bhattacharya

    (Promontory Financial Group)

  • Nezih Guner

    (ICREA-MOVE)

  • Gustavo Ventura

    (Arizona State University)

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, and how these effects are amplified by managerial investments. We find a quantitatively important role for managerial investments. Distortions that consist of a tax rate of 20% on the top 50% managers reduce steady-state output by about 14.6% in our benchmark model. When skills are exogenous the reduction is about 9.2%. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.10.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 1 (January)
Pages: 11-25

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Handle: RePEc:red:issued:11-61
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