DP3767 Dynastic Management
|Author(s):||Francesco Caselli, Nicola Gennaioli|
|Publication Date:||February 2003|
|Keyword(s):||family firms, financial development, growth, productivity|
|JEL(s):||E10, E20, G10, G30, O10, O40|
|Programme Areas:||International Macroeconomics, Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3767|
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.