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In the Wrong Hands: Complementarities, Resource Allocation, and TFP

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  • Simeon Alder

    () (Department of Economics, University of Notre Dame)

Abstract

I explore mismatch between the attributes of projects and the managers that run them as a source of variation in aggregate output and total factor productivity(TFP). The model parameters are calibrated to match observations on the size distribution of U.S. manufacturing firms, the share and distribution of managerial compensation, and aggregate moments in the national accounts. Quantitatively, even minor deviations from efficient (assortative) matching can have sizeable effects on output and productivity. In addition, the gains associated with the dissolution of non-assortative project-manager pairs are of the same order ofmagnitude as those generated by the elimination of idiosyncratic distortions in Restuccia and Rogerson (2008) or Hsieh and Klenow (2009). “Cronyism”, where key managerial positions are allocated on the basis of political connections rather than talent, imposes a substantial burden on economic welfare and the model can reconcile the seemingly contradictory evidence from numerous case studies with recent contributions to the assignment literature.

Suggested Citation

  • Simeon Alder, 2010. "In the Wrong Hands: Complementarities, Resource Allocation, and TFP," Working Papers 018, University of Notre Dame, Department of Economics, revised Nov 2012.
  • Handle: RePEc:nod:wpaper:018
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    Cited by:

    1. Simeon D. Alder, 2016. "In the Wrong Hands: Complementarities, Resource Allocation, and TFP," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 199-241, January.
    2. Manuel García-Santana & Enrique Moral-Benito & Josep Pijoan-Mas & Roberto Ramos, 2016. "Growing like Spain: 1995-2007," Economics Working Papers 1517, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Oriana Bandiera & Stephen Hansen & Andrea Prat & Raffaella Sadun, 2017. "CEO Behavior and Firm Performance," NBER Working Papers 23248, National Bureau of Economic Research, Inc.
    4. Laurence Ales & Antonio Andres Bellofatto & Jessie Jiaxu Wang, 2017. "Taxing Atlas: Executive Compensation, Firm Size and Their Impact on Optimal Top Income Tax Rates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 62-90, October.
    5. Jan Grobovsek, 2016. "Managerial Delegation, Law Enforcement, and Aggregate Productivity," ESE Discussion Papers 271, Edinburgh School of Economics, University of Edinburgh.
    6. Nezih Guner & Andrii Parkhomenko & Gustavo Ventura, 2018. "Managers and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 256-282, July.
    7. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.

    More about this item

    Keywords

    Matching; Complementarity; Misallocation; TFP; Cronyism;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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