Management

In this paper we analyze whether firm use cost efficient quantities of management. We estimate management's shadow price, dual Morishima elasticities of substitution, and relative price efficiencies. We find that the shadow price of management is about 1.3 million US dollars. Management is a weak dual complement for labor but a strong dual complement for capital. Increases in management reduce the relative income share of labor but not capital. Most firms use too little management, but relative use of management improves over time, with the combination of ownership and control (see Figure left), and competition.

In this paper we analyze how management influences the production process and how this influence can be modeled empirically using very flexible forms (see standard CD vs semiparametric estimates for returns to scale in the figure on the left).  Are productivity estimates good proxies for unobserved management? And, does management affect production in a neutral and monotonic fashion as assumed by these proxies? We show that two popular proxies, fixed effects and inefficiency scores, correlate with observed management practices. We find that the correlations are positive but weak. Also, management explains only a fraction of the proxies' variances. The data rejects the assumptions of neutrality and monotonicity. Last, our results suggest that management has characteristics both of a technology and an input.

In this paper we analyze how management influences productivity change.  We propose a model of production where technical change is both time and management induced. We define a general management index in addition to the general time index of Baltagi and Griffin (1988) and use them as arguments in the translog production function. Time and management induced technical change are then defined in terms of these general indices. For comparison, we also consider models in which time and management are specified as continuous variables. We report empirical results for a sample of manufacturing firms in the US, UK, Germany and France.