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Modern Management: Good for the Environment or Just Hot Air?

  • Nick Bloom
  • Christos Genakos
  • Ralf Martin
  • Raffaella Sadun

We use an innovative methodology to measure management practices in over 300 manufacturing firms in the UK. We then match this management data to production and energy usage information for establishments owned by these firms. We find that establishments in better managed firms are significantly less energy intensive. They use less energy per unit of output, and also in relation to other factor inputs. This is quantitatively substantial: going from the 25th to the 75th percentile of management practices is associated with a 17.4% reduction in energy intensity. This negative relationship is robust to a variety of controls for industry, location, technology and other factor inputs. Better managed firms are also significantly more productive. One interpretation of these results is that well managed firms are adopting modern lean manufacturing practices, which allows them to increase productivity by using energy more efficiently. This suggests that improving the management practices of manufacturing firms may help to reduce greenhouse gas emissions.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0891.

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Date of creation: Oct 2008
Date of revision:
Handle: RePEc:cep:cepdps:dp0891
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  1. David Neumark & Peter Cappelli, 1999. "Do "High Performance" Work Practices Improve Establishment-Level Outcomes?," NBER Working Papers 7374, National Bureau of Economic Research, Inc.
  2. S. Black & L. Lynch, 1997. "How to compete: the impact of workplace practices and information technology on productivity," LSE Research Online Documents on Economics 20298, London School of Economics and Political Science, LSE Library.
  3. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  4. Nick Bloom & Raffaella Sadun & John Van Reenen, 2007. "Americans Do I.T. Better: US Multinationals and the Productivity Miracle," CEP Discussion Papers dp0788, Centre for Economic Performance, LSE.
  5. Michael Greenstone, 2002. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1175-1219, December.
  6. Ralf Martin, 2005. "Productivity Dispersion, Competition and Productivity Measurement," CEP Discussion Papers dp0692, Centre for Economic Performance, LSE.
  7. Bloom, Nicholas & Van Reenen, John, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEPR Discussion Papers 5581, C.E.P.R. Discussion Papers.
  8. Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
  9. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  10. Rachel Griffith, 1999. "Using the ARD establishment level data to look at foreign ownership and productivity in the UK," IFS Working Papers W99/06, Institute for Fiscal Studies.
  11. repec:oup:qjecon:v:122:y:2007:i:4:p:1721-1758 is not listed on IDEAS
  12. Ronald Shadbegian & Wayne Gray, 2003. "Pollution Abatement Expenditures and Plant-Level Productivity: A Production Function Approach," Working Papers 03-16, Center for Economic Studies, U.S. Census Bureau.
  13. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  14. Bertrand, Marianne & Schoar, Antoinette, 2003. "Managing With Style: The Effect of Managers on Firm Policies," Working papers 4280-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  15. repec:oup:qjecon:v:118:y:2003:i:4:p:1169-1208 is not listed on IDEAS
  16. Nick Bloom & Stephen Dorgan & John Dowdy & John Van Reenen & Tom Rippin, 2005. "Management practices across firms and nations," LSE Research Online Documents on Economics 4669, London School of Economics and Political Science, LSE Library.
  17. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-76, August.
  18. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  19. repec:oup:qjecon:v:122:y:2007:i:4:p:1351-1408 is not listed on IDEAS
  20. Eli Berman & Linda T.M. Bui, 1998. "Environmental Regulation and Productivity: Evidence from Oil Refineries," NBER Working Papers 6776, National Bureau of Economic Research, Inc.
  21. Griffith, Rachel, 1999. "Using the ARD Establishment Level Data to Look at Foreign Ownership and Productivity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 109(456), pages F416-42, June.
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