How to Use Natural Experiments to Estimate Misallocation
- (pp. 906-38)
Abstract
We propose a method to estimate the effect of firm policies (e.g., bankruptcy laws) on allocative efficiency using (quasi-)experimental evidence. Our approach takes general equilibrium effects into account and requires neither a structural estimation nor a precise assumption on how the experiment affects firms. Our aggregation formula relies on treatment effects of the policy on the distribution of output-to-capital ratios, which are easily estimated. We show this method is valid for a large class of commonly used models in macrofinance. We apply it to the French banking deregulation episode of the mid-1980s and find an increase in aggregate TFP of 5 percent.Citation
Sraer, David, and David Thesmar. 2023. "How to Use Natural Experiments to Estimate Misallocation." American Economic Review, 113 (4): 906-38. DOI: 10.1257/aer.20190609Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G28 Financial Institutions and Services: Government Policy and Regulation
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H25 Business Taxes and Subsidies including sales and value-added (VAT)