TY  - JOUR
AU  - Akcigit, Ufuk
AU  - Alp, Harun
AU  - Peters, Michael
TI  - Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 21905
PY  - 2016
Y2  - January 2016
DO  - 10.3386/w21905
UR  - http://www.nber.org/papers/w21905
L1  - http://www.nber.org/papers/w21905.pdf
N1  - Author contact info:
Ufuk Akcigit
Department of Economics
University of Chicago
1126 East 59th Street
Saieh Hall, Office 403
Chicago, IL 60637
E-Mail: uakcigit@uchicago.edu

Harun Alp
20th St & C St NW, Washington, DC 20551
Washington, DC 20551
E-Mail: harun.alp@frb.gov

Michael Peters
Department of Economics
Yale University
28 Hillhouse Avenue
New Haven, CT 06511
Tel: 203/436-8475
E-Mail: m.peters@yale.edu
AB  - Managerial delegation is essential for firm growth. While firms in poor countries often shun outside managers and instead recruit among family members, the pattern is quite the opposite for firms in rich countries. In this paper, we ask whether these differences in managerial delegation have important aggregate effects. We construct a model of firm growth where entrepreneurs have fixed-time endowments to run their daily operations. As firms grow larger, the need to delegate decision-making authority increases. Firms in poor countries might therefore decide to remain small if delegating managerial tasks is difficult. We calibrate the model to firm-level data from the U.S. and India. We show that the model is quantitatively consistent with the experimental micro evidence on managerial efficiency and firm growth reported in Bloom et al. (2013). Our quantitative analysis shows that the low efficiency of delegation in India can account for 5% of productivity and 15% of income differences between the U.S. and India in steady state. We also show that such inefficient delegation possibilities reduce the size of Indian firms, but would cause substantially more harm for U.S. firms. This is because there are important complementarities between the ease of delegation and other factors affecting firm growth.
ER  -