“Management as a Technology” by Dr. John Van Reenen
John Van Reenen
London School of Economics
Are some management practices akin to a technology that can explain company and national productivity, or are do they simply reflect alternative styles? We collect panel data on core management practices in over 10,000 firms in 30 countries. We find large cross country differences, with the US having the highest size-weighted average management score. About one fifth of these cross-country management differences are due to stronger reallocation effects which rewards better managed firms with greater market share. We present a formal model of management and structurally estimate it on our panel data to recover parameters including the adjustment costs of managerial capital (which are twice those of tangible capital). Our model also predicts (i) a positive effect of management on firm performance; (ii) a positive effect of product market competition on average management quality and its covariance with firm size; and (iii) a rise (fall) in the level (dispersion) of management with firm age. These are not moments we use in the structural estimation and we find empirical support for these predictions in new data. Finally, building on our model we find that differences in management practices explain about one quarter of cross-country productivity differences.