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)
"In the Wrong Hands: Complementarities, Resource Allocation, and TFP."
American Economic Journal: Macroeconomics,
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Production, Pricing, and Market Structure; Size Distribution of Firms
Industry Studies: Manufacturing: General
Personnel Economics: Compensation and Compensation Methods and Their Effects
Economic Growth and Aggregate Productivity: General