March 2003

IZA DP No. 738: Managerial Job Assignment and Imperfect Competition in Asymmetric Equilibrium

published as "Firm Size, Productivity, and Manager Wages: A Job Assignment Approach" in: B.E. Journal of Theoretical Economics: Advances in Theoretical Economics, 2007, 7 (1), Article 8

This paper develops a model with multiple market locations in which the quality of intangible assets of firms, provided by management, determines the firms’ performance. Despite an ex ante symmetry of potential entrants, the equilibrium assignment of heterogeneous managerial skills to firms tends to be asymmetric. This sorting outcome determines both the goods market structure at single locations and the size distribution of firms. Results are consistent with a number of observed patterns regarding the size distribution of firms and establishments, and the relation of firm size to profitability, productivity, managerial skills and manager remuneration.