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

No 18, Working Papers from University of Notre Dame, Department of Economics

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.

Keywords: Matching; Complementarity; Misallocation; TFP; Cronyism (search for similar items in EconPapers)
JEL-codes: E13 O11 O47 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-01, Revised 2012-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Journal Article: In the Wrong Hands: Complementarities, Resource Allocation, and TFP (2016)
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