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Dynastic management

By Francesco Caselli and Nicola Gennaioli

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 macreconomic 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

Topics: HG Finance, HB Economic Theory, HD Industries. Land use. Labor
Publisher: National Bureau of Economic Research
Year: 2003
OAI identifier: oai:eprints.lse.ac.uk:5299
Provided by: LSE Research Online
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