Dynastic Management

Francesco Caselli () and Nicola Gennaioli ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: The most striking difference in corporate-governance arrangements between rich and poorcountries is that the latter rely much more heavily on the dynastic family firm, whereownership and control are passed on from one generation to the other. We argue that if theheir to the family firm has no talent for managerial decision making, dynastic management isa failure of meritocracy that reduces a firm's Total Factor Productivity. We present a simplemodel that studies the macreconomic causes and consequences of dynastic management. Inour model, the incidence of dynastic management depends, among other factors, on theimperfections of contractual enforcement. A plausible calibration suggests that, via dynasticmanagement, poor contract enforcement may be a substantial contributor to observed crosscountrydifferences in aggregate Total Factor Productivity.

Keywords: Meritocracy; Family firms; Financial Development; TFP (search for similar items in EconPapers)
JEL-codes: E1 E2 G1 G3 O1 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cse, nep-dev, nep-eff, nep-knm and nep-mac
Date: 2006-08
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Related works:
Working Paper: Dynastic Management (2003)
Working Paper: Dynastic Management (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0741

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