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Distortions, Endogenous Managerial Skills and Productivity Differences

  • Bhattacharya, Dhritiman

    ()

    (EQUIFAX)

  • Guner, Nezih

    ()

    (MOVE, Barcelona)

  • Ventura, Gustavo

    ()

    (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. These distortions lead to sharp reductions in plant productivity and the fraction of employment in large plants, with a quantitatively important role for managerial investments. We find that the model can account quite well for properties of Japanese size-distribution data, with a model-implied TFP of about 83% of the U.S. Distortions are critical in accounting for the differences in size distribution between the U.S. and Japan.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5963.

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Length: 33 pages
Date of creation: Sep 2011
Date of revision:
Publication status: published in: Review of Economic Dynamics, 2103, 16(1), 11-25.
Handle: RePEc:iza:izadps:dp5963
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