In the Wrong Hands: Complementarities, Resource Allocation, and Aggregate TFP
I explore mismatch between firm quality and firm management as a mechanism for variations in total factor productivity (TFP) across countries. In my calibrated model, even minor deviations from efficient (assortative) matching have sizeable effects on output and productivity. Underlying this result is the finding that the aggregate implications of matching frictions are highly sensitive to the degree of complementarity between firm and manager attributes. In addition, the relative dispersion of firm and managerial attributes is also key to quantifying the aggregate effects of matching frictions. The key model parameters are pinned down by calibrating the model to U.S. observations on the firm-size distribution and the level and distribution of managerial compensation. My results imply that "crony capitalism", where key managerial positions are allocated on the basis of political connections rather than talent, imposes a substantial burden on economic welfare.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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