Guo Xu, Hans-Joachim Voth, 16 September 2019

People in power may use their discretion to hire and promote family members and others in their network. While some empirical evidence shows that such patronage is bad, its theoretical effects are ambiguous – discretion over appointments can be used for good or bad. This column examines the battle performance of British Royal Navy officers during the Age of Sail and finds that patronage ‘worked’. On average, officers with connections to the top of the naval hierarchy did better on every possible measure of performance than those without a family connection. Where top administrators have internalised meritocratic values and competition punishes underperformance, patronage may enhance overall performance by selecting better individuals.

Alan Benson, Danielle Li, Kelly Shue, 24 April 2019

The Peter Principle states that organisations promote people who are good at their jobs until they reach their ‘level of incompetence’, implying that all managers are incompetent. This column examines data on worker- and manager-level performance for almost 40,000 sales workers across 131 firms and finds evidence that firms systematically promote the best salespeople, even though these workers end up becoming worse managers, and even though there are other observable dimensions of sales worker performance that better predict managerial quality. 

Wouter Dessein, Andrea Prat, 25 February 2019

A growing body of empirical work documents how management is a key production factor, both in terms of management practices and managerial talent. This column distinguishes three disparate theories, proposing a new framework that reconciles the insight of each. Contingency theory holds that firms always make optimal decisions, while the organisation-centric and leader-centric approaches hold that firms adopt better management practices, or hire better CEOS, respectively, for unmodeled reasons. The new framework integrates leadership quality and organisational capital, and generates new testable hypotheses.

Sharmin Sazedj, João Amador, José Tavares, 24 December 2018

When appointing a CEO, firms can choose a newcomer or someone who has been at the firm for a long time. Using data on Portuguese firms in the wake of the Global Crisis, this column finds no performance gap between newcomers and experienced CEOs in the period prior to the crisis. During the crisis, however, firms run by newcomer CEOs outperformed those run by experienced insiders. Newcomers attain higher productivity by making different decisions regarding personnel, expenditure, investment, and international trade. 

Nicholas Bloom, Erik Brynjolfsson, Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta Eksten, John Van Reenen, 17 May 2017

Disentangling the relationship between management practices and productivity has been hampered by the absence of large sample data across plants and firms. This column exploits a new survey covering US manufacturing to show that management practices vary both among and within companies. Furthermore, management practices are just as important for productivity as a number of other factors associated with successful businesses, such as technology adoption. 

Christopher Woodruff, 30 November 2016

Sustained growth and development involves a robust private sector. In this video Christopher Woodruff discusses options to improve the quality of management in firms. This video was recorded at the International Growth Centre.

Nicholas Bloom, Ralf Martin, 16 May 2010

Policies to improve management practices – such as competitive markets, business training and professional, rather than hereditary family, management – improve productivity and economic growth. Could this be at the cost of higher energy usage? This column, using extensive survey and experimental data, suggests that, quite to the contrary, well-managed firms are substantially more energy-efficient.

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