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

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  • Simeon Alder

    (UCLA)

Abstract

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.

Suggested Citation

  • Simeon Alder, 2009. "In the Wrong Hands: Complementarities, Resource Allocation, and Aggregate TFP," 2009 Meeting Papers 1265, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:1265
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    Cited by:

    1. Simeon Alder, 2018. "The Macroeconomics of Sorting and Turnover in a Dynamic Assignment Model\," 2018 Meeting Papers 1250, Society for Economic Dynamics.
    2. Michael Waugh & David Lagakos, 2009. "Specialization, Economic Development and Aggregate Productivity Differences," 2009 Meeting Papers 1248, Society for Economic Dynamics.
    3. Simeon Alder, 2016. "A Tale of Two C(...)s: Competence and Complementarity," 2016 Meeting Papers 1583, Society for Economic Dynamics.
    4. Bang Dang Nguyen & Kasper Meisner Nielsen, 2014. "What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?," Management Science, INFORMS, vol. 60(12), pages 2994-3010, December.

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