67 Pages Posted: 29 Jun 2007
Date Written: February 2007
Hierarchies allow individuals to leverage their knowledge through others' time. This mechanism increases productivity and amplifies the impact of skill heterogeneity on earnings inequality. To quantify this effect, we analyze the earnings and organization of U.S. lawyers and use the equilibrium model of knowledge hierarchies in Garicano and Rossi-Hansberg (2006) to assess how much lawyers' productivity and the distribution of earnings across lawyers reflects lawyers' ability to organize problem-solving hierarchically. We analyze earnings, organizational, and assignment patterns and show that they are generally consistent with the main predictions of the model. We then use these data to estimate the model. Our estimates imply that hierarchical production leads to at least a 30% increase in production in this industry, relative to a situation where lawyers within the same office do not.
Keywords: Hedonics, hierarchy, matching, scale of operations effects, sorting, Structural Estimation
JEL Classification: D31, J31, J41, L22, L23, L84
Suggested Citation: Suggested Citation
Garicano, Luis and Hubbard, Thomas N., The Return to Knowledge Hierarchies (February 2007). CEPR Discussion Paper No. 6077. Available at SSRN: https://ssrn.com/abstract=997389
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