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

41 Pages Posted: 9 Feb 2011

See all articles by Andrei Markevich

Andrei Markevich

New Economic School

Ekaterina Zhuravskaya

Paris School of Economics (PSE)

Date Written: February 2011

Abstract

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: diversification, M-form hierarchy, Soviet economy, yardstick competition

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 (February 2011). CEPR Discussion Paper No. DP8221. Available at SSRN: https://ssrn.com/abstract=1758430

Andrei Markevich (Contact Author)

New Economic School ( email )

100 Novaya Street
Skolkovo
Moscow, 143025
Russia
+79629851892 (Phone)
+74991293722 (Fax)

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

Ekaterina Zhuravskaya

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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