Question

What do economists mean when they describe management as a “technology” and why might management quality vary across firms and sectors?

Answer 1

Management may be described as a “technology” since some forms of management practices are like a “technology”, in the sense that they raise TFP. Researchers have been able to collect the data supports the predictions from the MAT model. Further, management is positively associated with improved firm performance (productivity and profitability). Also, firm management rises with more intense product market competition. Management quality vary across firms and sectors depending upon the level of market competition and relatively poor performance in developing countries like Turkey, Brazil, Poland, Chile even China and India is mostly driven by a large “left tail” of poorly managed firms which is a relatively common factor across developing countries. The fraction of firms performing below the lowest quartile of U.S. firms ranges between 55 percent and 70 percent in such countries as Turkey, Brazil, Poland etc.