Management Practice in Production

In this paper we account for observed management practice in the estimation of a production function. In our model management practice is observable and we allow it to affect output directly (neutral shift) and indirectly by affecting input productivity. This formulation gives us a semiparametric smooth coefficient model. Empirically, we find that estimates of unobserved (in)efficiency do not correlate highly with observed management. We also find that management affects output both directly and indirectly via all factors of production, i.e., the productivity effect of management is non-neutral. Finally, we find that the indirect effects of conventional inputs vary with management.