M-Form Hierarchy with Poorly-Diversified Divisions: A Case of Khrushchev’s Reform in Soviet Russia

38 Pages Posted: 30 Nov 2009 Last revised: 24 Nov 2014

See all articles by Andrei Markevich

Andrei Markevich

New Economic School

Ekaterina Zhuravskaya

Paris School of Economics (PSE)

Date Written: January 20, 2011


We test the premise of the theoretical literature that M-form political hierarchies are effective in creating yardstick competition between regional divisions only when divisions have sufficiently diversified or similar industrial composition. The reason is that the competition among poorly-diversified inter-related divisions creates incentives for regional leaders to pursue policies that hurt growth of the neighboring regions in order to make their own region look better from the point of view of the center. We use a unique episode in Soviet history, when a traditional Soviet unitary-form (U-form) hierarchy was replaced by a multidivisional-form (M-form) organization, namely, the Khrushchev’s “Sovnarkhoz” reform. First, we demonstrate that during this reform regional leaders were subjected to relative performance evaluation which created career concerns to generate industrial growth. Second, we show that these career concerns resulted in higher growth in regions with sufficiently diversified and, therefore, self-contained economies and resulted in lower growth in highly specialized regions.

Keywords: career concerns, political hierarchy, yardstick competition, Soviet economy

JEL Classification: D73, H7, J63, N44, P3

Suggested Citation

Markevich, Andrei and Zhuravskaya, Ekaterina, M-Form Hierarchy with Poorly-Diversified Divisions: A Case of Khrushchev’s Reform in Soviet Russia (January 20, 2011). Journal of Public Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1514333 or http://dx.doi.org/10.2139/ssrn.1514333

Andrei Markevich

New Economic School ( email )

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HOME PAGE: http://fir.nes.ru/en/people/professors/Pages/amarkevich.aspx

Ekaterina Zhuravskaya (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014

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