Cartels, Managerial Incentives, and Productive Efficiency in German Coal Mining, 1881–1913

Abstract

Managerial firms and cartels were central components of the German economy during the late nineteenth and early twentieth century. Based on stochastic frontier regressions, we show for a sample of coal mining corporations and the period 1881–1913 that cartelization did not affect productive efficiency. Bonuses paid to board members, however, did increase the efficiency of coal mining firms. Thus, one pillar of the German economic model did not negatively affect economic efficiency, whereas another pillar had a positive impact. Furthermore, our results suggest that coal was mined with slightly decreasing returns to scale.