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  3. American Economic Journal: Macroeconomics
  4. January 2016
  5. In the Wrong Hands: Complementarities, Resource Allocation, and TFP

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

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Abstract

I explore mismatch between firms and their managers as a source of variation in aggregate output and total factor productivity (TFP). The model is calibrated to match observations on the size distribution of US manufacturing firms, managerial compensation, and aggregate moments in the national accounts. Quantitatively, small deviations from assortative matching can have sizeable effects on output and TFP. "Cronyism," where managerial positions are allocated by status rather than talent, imposes a substantial burden on economic welfare. Moreover, the model can reconcile the seemingly contradictory evidence from numerous case studies with results from recent contributions to the assignment literature. (JEL D24, E23, L11, L60, M52, O40)

Citation

Alder, Simeon D. 2016. "In the Wrong Hands: Complementarities, Resource Allocation, and TFP." American Economic Journal: Macroeconomics, 8 (1): 199-241. DOI: 10.1257/mac.20120257

Additional Materials

JEL Classification

  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • E23 Macroeconomics: Production
  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L60 Industry Studies: Manufacturing: General
  • M52 Personnel Economics: Compensation and Compensation Methods and Their Effects
  • O40 Economic Growth and Aggregate Productivity: General
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