Essays on Firm Organization and International Trade

Abstract

This dissertation consists of three essays at the intersection of organizational economics and international trade. In the first essay, I investigate how the quality of management technology (MT) to monitor and incentivize employees affects aggregate economic outcomes. The key economic insight is that a common improvement in MT across allfirms favors big firms, since these firms use management more intensively by adopting management hierarchies with more layers. This heterogeneous impact on firms with different numbers of layers creates a selection effect that the smallest firms exit the market, and the biggest firms expand. As a result, average firm size and aggregate productivity increase. In the second essay, I extend the baseline model developed in the first essay into the international context and investigate how an improvement in MT interacts with trade liberalization. Two theoretical results deserve particular attention. First, countries with better MT trade more with each other conditional on other factors. Second, a better MT amplifies the welfare gains from trade under certain conditions. Quantitative exercises show that an improvement in MT has quantitatively significant impacts on average firm size, aggregate productivity, and the welfare gains from trade. The final essay develops a general equilibrium model featuring an agency problem inside the firm (i.e., the separation of ownership and control) and points out a new channel through which trade liberalization leads to within-firm productivity gains. In the closed economy, managers working in the least productive firms exert effort higher than the second-best level to induce their owners to produce. After trade liberalization, a fraction of these managers is incentivized to exert more effort, since they still want to induce their owners to produce and continue to receive rents. Therefore, the least productive surviving firms whose ownership is separate from control receive productivity gains after trade liberalization.