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Barcelona GSE Working Paper No. 673

Title: Distortions, Endogenous Managerial Skills and Productivity Differences
Authors: Dhritiman Bhattacharya, Nezih Guner, Gustavo Ventura
Date: 19-11-2012
Keywords: distortions, size, skill investments, productivity differences
JEL Codes: O40, E23
We develop a span-of-control model where managerial skills are endogenous and the outcome of investments over the life cycle of managers. We calibrate this model to U.S. plant-size data to quantify the effects of distortions that are correlated with the size of production units, and how these effects are amplified by managerial investments. We find a quantitatively important role for managerial investments. Distortions that consist of a tax rate of 20% on the top 50% managers reduce steady-state output by about 14.6% in our benchmark model. When skills are exogenous the reduction is about 9.2%.
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