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Managerial Efficiency, Organizational Capital and Productivity

  • Michael Gort
  • Seong-Hoon Lee
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    The paper focuses on the impact of managerial efficiency on output. Three sources of managerial efficiency are identified: (a) superior initial managerial endowments, (b) the accumulation of managerial knowledge and skills through learning and (c) the impact of an effective market for managerial resources internal to the firm. All three are explicitly measured by appropriate variables and their impact is examined in the context of variously specified production functions. The empirical analysis is carried out with data for approximately 5,000 new manufacturing plants in the United States over the 1973-92 period. It is found that variation in managerial endowments is an important explanatory variable for output with all other relevant inputs controlled. It is further found that the survival of plants with superior managerial efficiency, and the death of those with inferior efficiency, explains a substantial fraction of total factor productivity change in the manufacturing sector of the U.S. economy. There is also clear evidence of the significance for efficiency of internal markets as well as evidence of learning as plants age. Learning and superior managerial resources of old plants largely offset the benefits of capital goods of later vintage of new plants.

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    File URL: ftp://ftp2.census.gov/ces/wp/2003/CES-WP-03-08.pdf
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    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 03-08.

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    Date of creation: Mar 2003
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    Handle: RePEc:cen:wpaper:03-08
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    1. Seong-Hoon Lee & Michael Gort, 2001. "The Life Cycles of Industrial Plants," Working Papers 01-10, Center for Economic Studies, U.S. Census Bureau.
    2. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
    3. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
    4. J. Bradford Jensen & Robert H. McGuckin & Kevin Stiroh, 2000. "The Impact of Vintage and Survival on Productivity: Evidence from Cohorts of U.S. Manufacturing Plants," Economics Program Working Papers 00-01, The Conference Board, Economics Program.
    5. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
    6. Michael Gort & Seong-Hoon Lee, 2001. "The Demand for Human Capital: A Microeconomic Approach," Working Papers 01-16, Center for Economic Studies, U.S. Census Bureau.
    7. Fellner, William, 1969. "Specific interpretations of learning by doing," Journal of Economic Theory, Elsevier, vol. 1(2), pages 119-140, August.
    8. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
    9. Jovanovic, B., 1993. "The Diversification of Production," Working Papers 93-11, C.V. Starr Center for Applied Economics, New York University.
    10. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
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