Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?
Lucia Foster, John Haltiwanger and Chad Syverson
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| Article Citation |
Foster, Lucia, John Haltiwanger, and Chad Syverson. 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?" American Economic Review, 98(1): 394–425.
DOI:10.1257/aer.98.1.394
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| Abstract |
We investigate the nature of selection and productivity growth in industries
where we observe producer-level quantities and prices separately. We show
there are important differences between revenue and physical productivity.
Because physical productivity is inversely correlated with price while revenue
productivity is positively correlated with price, previous work linking (revenue-
based) productivity to survival confounded the separate and opposing
effects of technical efficiency and demand on survival, understating the true
impacts of both. Further, we find that young producers charge lower prices
than incumbents. Thus the literature understates new producers' productivity
advantages and entry's contribution to aggregate productivity growth. (JEL
D24, L11, L25)
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| Article Full-Text Access |
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| Additional Materials |
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| Link to Appendix
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| Authors |
Foster, Lucia (Center for Economic Studies, US Bureau of the Census)
Haltiwanger, John (U MD)
Syverson, Chad (U Chicago)
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| JEL Classifications |
D24: Production; Cost; Capital and Total Factor Productivity; Capacity
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L25: Firm Performance: Size, Diversification, and Scope
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(pp. 5 - 37)