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

  • Simeon Alder

    (UCLA)

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.

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File URL: https://economicdynamics.org/meetpapers/2009/paper_1265.pdf
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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1265.

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Date of creation: 2009
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Handle: RePEc:red:sed009:1265
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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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  1. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 835-864.
  2. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  3. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
  4. David N. DeJong & Chetan Dave, 2007. "Introduction to Structural Macroeconometrics
    [Structural Macroeconometrics]
    ," Introductory Chapters, Princeton University Press.
  5. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
  6. Kee-Hong Bae & Jun-Koo Kang & Jin-Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
  7. Edward M. Graham, 2003. "Reforming Korea's Industrial Conglomerates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 341.
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