Abstract
Management quality drives firm performance and aggregate productivity, yet the supply of managerial talent remains poorly understood. A key friction is that hired managers cannot fully appropriate the surplus they generate, unlike entrepreneurs who own their firms, creating a wedge between private and social returns to management. Here we develop a general equilibrium model to quantify how this corporate governance friction distorts talent allocation between entrepreneurship, management, and employment. Using the universe of Hungarian firms and CEOs (1986–2022), we exploit the transition to capitalism—when the count of enterprises increased from 21,000 to 115,000 in three years—to identify the parameters of the model. We find that managers capture only 60% of the surplus they create, resulting in too few professional managers and too many less-productive entrepreneurs. Eliminating this friction would raise GDP per worker by 4% through improved occupational composition. Uniform subsidies fail to correct the misallocation, raising GDP by only 0.1%. Our results show that management interventions’ aggregate effects depend critically on targeting the specific friction between hired managers and entrepreneurs rather than expanding the overall pool of business leaders.
Please cite as
Koren, Miklós and Krisztina Orbán. 2025. "Managers, Entrepreneurs, and the Allocation of Talent: Evidence from Hungary's Transition"
