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Distortions, Endogenous Managerial Skills and Productivity Differences

Author

Listed:
  • Bhattacharya, Dhritiman

    (EQUIFAX)

  • Guner, Nezih

    (CEMFI)

  • Ventura, Gustavo

    (Arizona State University)

Abstract
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.

Suggested Citation

  • Bhattacharya, Dhritiman & Guner, Nezih & Ventura, Gustavo, 2011. "Distortions, Endogenous Managerial Skills and Productivity Differences," IZA Discussion Papers 5963, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5963
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    More about this item

    Keywords

    skill investments; size; distortions; productivity differences;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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