Empirical Project 6 Solutions

These are not model answers. They are provided to help students, including those doing the project outside a formal class, to check their progress while working through the questions using the Excel, R, or Google Sheets walk-throughs. There are also brief notes for the more interpretive questions. Students taking courses using Doing Economics should follow the guidance of their instructors.

Part 6.1 Looking for patterns in the survey data

Country Overall management (mean) Monitoring management (mean) Targets management (mean) Incentives management (mean)
Argentina 2.76 3.08 2.68 2.56
Australia 3.02 3.29 3.02 2.74
Brazil 2.71 3.06 2.69 2.55
Canada 3.17 3.55 3.07 2.94
Chile 2.83 3.14 2.72 2.67
China 2.71 2.90 2.63 2.69
France 3.03 3.43 2.97 2.74
Germany 3.23 3.57 3.22 2.98
Greece 2.73 2.97 2.66 2.58
India 2.67 2.91 2.66 2.63
Italy 3.03 3.26 3.10 2.76
Japan 3.23 3.50 3.34 2.92
Mexico 2.92 3.29 2.88 2.71
New Zealand 2.93 3.18 2.96 2.63
Poland 2.90 3.12 2.94 2.83
Portugal 2.87 3.27 2.83 2.59
Republic of Ireland 2.89 3.14 2.81 2.79
Sweden 3.21 3.64 3.19 2.83
UK 3.03 3.34 2.98 2.86
United States 3.35 3.58 3.26 3.25

Solution figure 6.1 Mean of management scores.

Country Overall management (rank) Monitoring management (rank) Targets management (rank) Incentives management (rank)
Argentina 16 16 17 19
Australia 9 8 7 10
Brazil 19 17 16 20
Canada 5 4 6 3
Chile 15 13 15 14
China 18 20 20 13
France 7 6 9 11
Germany 2 3 3 2
Greece 17 18 19 18
India 20 19 18 15
Italy 8 11 5 9
Japan 3 5 1 4
Mexico 11 9 12 12
New Zealand 10 12 10 16
Poland 12 15 11 7
Portugal 14 10 13 17
Republic of Ireland 13 14 14 8
Sweden 4 1 4 6
UK 6 7 8 5
United States 1 2 2 1

Solution figure 6.2 Rank according to management scores.

Solution figure 6.3 Management practices in manufacturing firms around the world.

(Note: It is likely that Bloom et al. (2012) were using an earlier version of this survey data to create their Figure 1. The earlier version had not been updated to include data from the latest round of interviews.)

US Frequency Proportion of firms (%) Chile Frequency Proportion of firms (%)
1.00 0 0.00 1.00 0 0.00
1.20 0 0.00 1.20 0 0.00
1.40 1 0.08 1.40 1 0.32
1.60 0 0.00 1.60 3 0.95
1.80 10 0.82 1.80 6 1.89
2.00 9 0.73 2.00 24 7.57
2.20 28 2.29 2.20 15 4.73
2.40 46 3.76 2.40 30 9.46
2.60 58 4.73 2.60 25 7.89
2.80 96 7.84 2.80 49 15.46
3.00 139 11.35 3.00 52 16.40
3.20 118 9.63 3.20 28 8.83
3.40 164 13.39 3.40 27 8.52
3.60 111 9.06 3.60 21 6.62
3.80 145 11.84 3.80 20 6.31
4.00 114 9.31 4.00 9 2.84
4.20 60 4.90 4.20 6 1.89
4.40 60 4.90 4.40 1 0.32
4.60 31 2.53 4.60 0 0.00
4.80 31 2.53 4.80 0 0.00
5.00 4 0.33 5.00 0 0.00

Solution figure 6.4 Frequency tables for the US and Chile.

Solution figure 6.5 Comparing the distribution of management scores for the US and Chile.

Solution figure 6.6 Box and whisker plots for the US and Chile.

Country Average of management Average of monitoring Average of targets Average of people
Canada 2.52 2.82 2.44 2.17
France 2.40 2.59 2.29 2.03
Germany 2.64 2.85 2.55 2.45
Italy 2.48 2.67 2.33 2.20
Sweden 2.57 2.90 2.68 2.36
UK 2.82 3.07 2.71 2.62
US 3.00 3.21 2.87 2.92

Solution figure 6.7 Mean scores for hospitals.

Country Average of management Average of monitoring Average of targets Average of people
Canada 2.78 2.92 2.86 2.33
Germany 2.54 2.70 2.49 2.26
Sweden 2.80 3.09 2.72 2.51
UK 2.96 3.07 2.97 2.75
US 2.72 2.88 2.63 2.47

Solution figure 6.8 Mean scores for schools.

Solution figure 6.9 Bar chart of mean management score for hospitals.

Solution figure 6.10 Bar chart of mean management score for schools.

Part 6.2 Do management practices differ between countries?

Country Mean Standard deviation Number of firms Width of CI
Chile 2.83 0.60 317 0.07
United States 3.35 0.64 1,224 0.04

Solution figure 6.11 Mean management score in manufacturing firms for the US and Chile.

Solution figure 6.12 Bar chart of mean management score in manufacturing firms for the US and Chile, with 95% confidence intervals.

Hospitals Schools
Country Average SD Number Average SD Number Width (hospitals) Width (schools)
Canada 2.52 0.45 175 2.78 0.39 151 0.07 0.06
France 2.40 0.43 158 0.07
Germany 2.64 0.39 130 2.54 0.43 143 0.07 0.07
Italy 2.48 0.52 166 0.08
Sweden 2.57 0.44 43 2.80 0.44 89 0.13 0.09
UK 2.82 0.43 184 2.96 0.40 110 0.06 0.07
US 3.00 0.54 327 2.72 0.45 285 0.06 0.05

Solution figure 6.13 Mean management score and 95% confidence interval width for hospitals and schools.

Solution figure 6.14 Bar chart of mean management score for hospitals, with 95% confidence intervals.

Solution figure 6.14 shows sample means for the management scores in different countries along with their 95% confidence intervals.

For hospitals, the mean for the US is likely to be higher than all other countries’ means as its confidence interval clearly does not overlap with any of the other countries’ confidence intervals. We would reach the same conclusion even if wider (99%) confidence intervals were used.

Solution figure 6.15 Bar chart of mean management score for schools, with 95% confidence intervals.

For schools (Solution figure 6.15), the UK is likely to have a higher mean than the US as their respective confidence intervals do not overlap, by a significant margin. For the same reason it is apparent that the average German management score is lower than that in the other countries shown in the figure. Sweden, Canada and the US have overlapping confidence intervals and hence there is no clear evidence that would point at substantial differences in the respective population means.

  1. Holding all other things fixed, we would expect the confidence intervals to be wider if the standard deviation was larger (the sample mean is estimated less precisely).

    Holding all other things fixed, we would expect the confidence intervals to be narrower if the number of observations was larger (we sampled more of the whole population). The more observations we have, the closer we can approximate the population mean.

    Looking at the confidence intervals, standard deviation, and number of observations in our data, we can confirm this relationship.

Part 6.3 What factors affect the quality of management?

Private Public
Country Mean SD Number Mean SD Number Width (private) Width (public)
Canada 2.78 0.79 4 2.52 0.45 171 1.25 0.07
France 2.65 0.51 20 2.37 0.41 138 0.24 0.07
Germany 2.61 0.39 68 2.68 0.38 62 0.09 0.10
Italy 2.71 0.50 33 2.42 0.51 133 0.17 0.09
Sweden 3.10 0.07 2 2.54 0.43 41 0.64 0.13
UK 3.00 0.39 64 2.73 0.42 120 0.10 0.07
US 3.14 0.53 164 2.87 0.52 163 0.08 0.08

Solution figure 6.16 Mean management score and 95% confidence interval width for private and public hospitals.

Private Public
Country Mean SD Number Mean SD Number Width (private) Width (public)
Canada 2.76 0.45 21 2.78 0.38 129 0.21 0.07
Germany 2.73 0.49 16 2.51 0.41 127 0.26 0.07
Sweden 3.07 0.63 23 2.71 0.31 66 0.27 0.08
UK 2.89 0.41 11 2.97 0.40 99 0.28 0.08
US 2.66 0.48 74 2.75 0.44 211 0.11 0.06

Solution figure 6.17 Mean management score and 95% confidence interval width for private and public schools.

Solution figure 6.18 Bar chart of mean management score for public and private hospitals, with 95% confidence intervals.

Hospitals: After we condition on ownership type, the US still has the highest average score for public and private hospitals while France has the lowest average score for public and Germany for private hospitals. Compared to Question 2b in Part 6.2, the rankings in the middle have changed. For example, among private hospitals, Sweden ranks higher than in the overall rankings (though we should interpret this result with caution as there are only two observations for private hospitals).

In most countries, private hospitals are, on average, better managed than public hospitals (except for Germany). This is most obvious in the US and the UK, where the respective confidence intervals are non-overlapping. But in most countries reported the private and public confidence intervals are overlapping. In these countries, the data is compatible with a hypothesis that private and public hospitals have equally effective management.

Note the very wide confidence intervals for Canada and Sweden, which have very few observations.

Solution figure 6.19 Bar chart of mean management score for public and private schools, with 95% confidence intervals.

Schools: Looking across countries, there is no clear difference in the patterns of management practices in public vs private schools: in some countries public schools have a higher mean, in others, private schools have a higher mean. In fact, in the US, UK, Germany and Canada the confidence intervals for private and public schools are well overlapping, indicating that the data is compatible with a hypothesis of equal average management scores in private and public schools. The exception is Sweden, where the data indicates the possibility that the average management quality in private schools is higher than that in public schools. The confidence interval for the management score in private schools does not overlap with the confidence interval for public schools.

Larger Smaller
Country; ownership type Mean SD Number Mean SD Number Width (Larger) Width (Smaller)
Brazil
Dispersed shareholders 3.48 0.73 45 3.06 0.67 28 0.22 0.26
Family owned, external CEO 2.99 0.69 10 2.82 0.73 8 0.49 0.61
Family owned, family CEO 2.70 0.64 41 2.50 0.67 80 0.20 0.15
Founder 2.66 0.59 72 2.35 0.52 124 0.14 0.09
Government 2.44 1.18 2 4.00 1 10.59
Managers 2.51 0.63 7 2.64 0.57 23 0.58 0.25
Other 3.01 0.54 29 2.57 0.40 13 0.21 0.24
Private equity 3.23 0.59 5 0.73
Private individuals 2.94 0.52 42 2.69 0.71 39 0.16 0.23
Canada
Dispersed shareholders 3.52 0.58 53 3.43 0.60 53 0.16 0.16
Family owned, external CEO 3.31 0.49 9 2.90 0.47 6 0.37 0.49
Family owned, family CEO 3.02 0.61 14 2.75 0.55 25 0.36 0.23
Founder 3.01 0.69 14 2.86 0.56 37 0.40 0.19
Government 3.00 1
Managers 3.01 0.57 5 3.17 0.49 5 0.70 0.61
Other 3.33 0.40 12 3.15 0.44 16 0.26 0.24
Private equity 3.12 0.58 21 3.34 0.67 11 0.26 0.45
Private individuals 3.46 0.45 37 2.90 0.60 66 0.15 0.15
United States
Dispersed Shareholders 3.50 0.56 295 3.45 0.56 158 0.06 0.09
Family owned, external CEO 3.45 0.54 22 2.86 0.63 6 0.24 0.66
Family owned, family CEO 3.44 0.58 42 2.96 0.68 73 0.18 0.16
Founder 3.14 0.51 28 3.14 0.61 60 0.20 0.16
Government 4.06 1
Managers 3.80 0.73 6 3.57 0.66 6 0.77 0.69
Other 3.48 0.48 31 3.06 0.74 21 0.17 0.33
Private equity 3.50 0.43 27 3.34 0.48 27 0.17 0.19
Private individuals 3.40 0.68 68 3.07 0.61 93 0.16 0.13

Solution figure 6.20 Table of mean management score and 95% confidence interval width, according to ownership type.

Solution figure 6.21 Brazil: Bar chart of mean management score by ownership type, with 95% confidence intervals.

For Brazil: On average, larger firms tend to be managed better, regardless of ownership type. However, confidence intervals are largely overlapping and hence the data is compatible with the hypothesis that management quality does not correlate with organization size. (We cannot say anything meaningful about government-run firms because there are only a few observations.) Firms owned by shareholders (dispersed or private equity) have a higher mean management score than family-owned firms.

Solution figure 6.22 Canada: Bar chart of mean management score by ownership type, with 95% confidence intervals.

For Canada: No clear pattern between firm size and management practice is apparent: larger firms are managed better (on average) for some ownership types, while smaller firms are managed better for other types. For most ownership types, it is quite likely that we would observe the differences shown, under a hypothesis that the populations have the same mean using the rule of thumb. As with Brazil, shareholder-owned firms have higher average management scores than family-owned firms, though the differences are smaller in absolute terms and the respective confidence intervals are largely overlapping.

Solution figure 6.23 US: Bar chart of mean management score by ownership type, with 95% confidence intervals.

For the US: Here there is a clearer pattern linking firm size and management practices, with larger firms being managed better (for founder-owned firms, the means are the same). For larger firms, the means for family-owned firms, shareholder-owned firms and most other ownership types are very similar. The overlapping confidence intervals indicate that the data provides little evidence that the underlying population means are different.

Whenever you use confidence intervals in the above manner, to decide whether there are differences in subgroup populations, remember that 95% confidence intervals may not always contain the respective population means, so your conclusions are never definite.