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Discussion Paper Details

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Title: Dynastic Management

Author(s): Francesco Caselli and Nicola Gennaioli

Publication Date: February 2003

Keyword(s): family firms, financial development, growth and productivity

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: 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 cross-country differences in productivity.

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Bibliographic Reference

Caselli, F and Gennaioli, N. 2003. 'Dynastic Management'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3767