Overview

Good management practices are important determinants of firm success. Better managed firms are larger and more productive, and management interventions lead to sizeable and persistent positive effects on firm performance. It is unclear, however, to what extent aggregate outcomes are shaped by good management. We build an overlapping generations model of managers to study the demand and supply of good management and the competition between managers of heterogeneous skills. We use data on the universe of corporations and their top managers in Hungary between 1985 and 2019 to study the rapid liberalization of the 1990s through the lens of our model. We use the model to evaluate hypothetical policies aiming to improve aggregate productivity through management education and corporate liberalization. Our results suggest that the inelastic supply of good managers is an important constraint to the success of management interventions.