Heterogeneous Entrepreneurs and Managerial Delegation in an Open Economy

Abstract

This study examines the impact of firm-level managerial delegation on aggregate economy. First, managerial delegation demands skilled labor and hence affects the labor market. Second, managerial delegation also affects the product market by improving production efficiency. Managerial delegation incurs costs but does not equally benefit firms. Higher entrepreneurial-skill entrepreneurs are selected, which dramatizes the firm size distribution. These entrepreneurs run larger and more productive firms, and contribute to the aggregate economy by creating higher-paying jobs. This paper provides new implication of trade gain, which is larger for the country where managerial delegation is easier.