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 or R 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

Mean of management scores.

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

Rank according to management scores.

Solution figure 6.2 Rank according to management scores.

Countries tend to have similar ranks across individual criteria, and ranks for individual criteria are generally similar to overall management rank. We can therefore say that countries with a higher overall rank are better managed across all aspects.

Management practices in manufacturing firms around the world.

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

Frequency tables for the US and Chile.

Solution figure 6.4 Frequency tables for the US and Chile.

Comparing the distribution of management scores for the US and Chile.

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

Differences: The distribution of the US is more right-centred than that of Chile, with a larger proportion of observations at higher values.

Box and whisker plots 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

Mean scores for hospitals.

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

Mean scores for schools.

Solution figure 6.8 Mean scores for schools.

Bar chart of mean management score for hospitals.

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

Bar chart of mean management score for schools.

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

The country rankings for both hospitals and schools are different from that of manufacturing. For example, while the UK ranks below the US, Sweden, and Canada in manufacturing, it ranks above these countries in schools. Similarly, Germany has a high ranking for both manufacturing and hospitals, but a low ranking for schools.

UK schools have recently undergone some reforms to improve management, such as decentralization (allowing schools autonomy over their management policies) and sharing of better practices across different schools. These policies could explain why the average management score for schools in the UK is relatively high.

Part 6.2 Are differences in management practices statistically significant?

Country Mean Standard deviation Number of firms Width of CI
Chile 2.83 0.60 317 0.07
United States 3.35 0.64 1224 0.04

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

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

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

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

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

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

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

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

For hospitals, the mean for the US is significantly higher than all other countries’ means. (We would reach the same conclusion even if 99% confidence intervals were used.)

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

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

For schools, the UK has a (statistically) significantly higher mean than the US, and Germany has a (statistically) significantly lower mean. (Without doing formal tests, we cannot say anything about the means for Sweden and Canada.)

  1. Holding all other things fixed, the confidence intervals would be wider if the standard deviation was larger (the sample mean is estimated less precisely). Using the ring toss example, since we are less sure of where to stand, we must make the ring wider in order to still have a 95% probability of landing it around the peg.

Holding all other things fixed, the confidence intervals would 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. Using the ring toss example, since we are surer of where to stand, we must make the ring narrower in order to still have a 95% probability of landing it around the peg.

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

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

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

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

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

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

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 and France has the lowest average score (for both public and private), though compared to Question 5, 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 better managed than public hospitals (except for Germany, though the difference is not statistically significant).

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

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

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

Schools: Looking across countries, the difference between public and private school management does not appear to be statistically significant, except in Sweden, where private schools are managed better. Also, 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.

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

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

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

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

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. (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 than family-owned firms.

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

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, the difference is not statistically significant (based on the rule of thumb). As with Brazil, shareholder-owned firms are better managed than family-owned firms, though the difference is smaller in absolute terms.

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

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 and shareholder-owned firms are similar (differences are not statistically significant).