Caselli, Francesco and Gennaioli, Nicola
Centre for Economic Policy Research, London, UK.
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Dynastic management is the inter-generational transmission of control over assets that is typical of family-owned firms. It is pervasive around the world, but especially in developing countries. We argue that dynastic management is a potential source of inefficiency: if the heir to the family firm has no talent for managerial decision-making, meritocracy fails. We present a simple model that studies the macroeconomic causes and consequences of this phenomenon. In our model, the incidence of dynastic management depends on the severity of asset-market imperfections, on the economy’s saving rate, and on the degree of inheritability of talent across generations. We therefore introduce novel channels through which financial market failures and saving rates affect aggregate total factor productivity. Numerical simulations suggest that dynastic management may be a substantial contributor to observed crosscountry differences in productivity.
||© 2003 Francesco Caselli and Nicola Gennaioli
||family firms, financial development, growth and productivity
|Library of Congress subject classification:
||H Social Sciences > HG Finance
H Social Sciences > HD Industries. Land use. Labor
|Journal of Economic Literature Classification System:
||G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E20 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O10 - General
G - Financial Economics > G1 - General Financial Markets > G10 - General
||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
||03 Jun 2008 09:53
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