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Distortions, Endogenous Managerial Skills and Productivity Differences

  • Dhritiman Bhattacharya
  • Nezih Guner
  • Gustavo Ventura

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%.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 673.

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Date of creation: Nov 2012
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Handle: RePEc:bge:wpaper:673
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