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M-form hierarchy with poorly-diversified divisions: a case of Khrushchev’s reform in Soviet Russia

  • Markevich, Andrei
  • Zhuravskaya, Ekaterina

We test the premise of the theoretical literature that M-form political hierarchies are effective in creating yardstick competition between regional divisions only when divisions have sufficiently diversified or similar industrial composition. The reason is that the competition among poorly-diversified inter-related divisions creates incentives for regional leaders to pursue policies that hurt growth of the neighboring regions in order to make their own region look better from the point of view of the center. We use a unique episode in Soviet history, when a traditional Soviet unitary-form (U-form) hierarchy was replaced by a multidivisional-form (M-form) organization, namely, the Khrushchev’s 'Sovnarkhoz' reform. First, we demonstrate that during this reform regional leaders were subjected to relative performance evaluation which created career concerns to generate industrial growth. Second, we show that these career concerns resulted in higher growth in regions with sufficiently diversified and, therefore, self-contained economies and resulted in lower growth in highly specialized regions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8221.

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Date of creation: Feb 2011
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Handle: RePEc:cpr:ceprdp:8221
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  1. Victor Chernozhukov & Ivan Fernandez-Val & Jinyong Hahn & Whitney Newey, 2009. "Identification and estimation of marginal effects in nonlinear panel models," CeMMAP working papers CWP05/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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