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  4. May 2016
  5. Firm-Level Dispersion in Productivity: Is the Devil in the Details?

Firm-Level Dispersion in Productivity: Is the Devil in the Details?

  • Lucia Foster
  • Cheryl Grim
  • John Haltiwanger
  • Zoltan Wolf
American Economic Review
vol. 106, no. 5, May 2016
(pp. 95-98)
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Abstract

We explore current interpretations of firm-level dispersion in revenue-based productivity measures. Since revenue function estimates using proxy methods differ from factor elasticities, the residual emerging from this method remains a combination of demand and technical effciency shocks, and is not equal to the concept of revenue productivity that plays an important role in recent literature on misallocation. This has implications for applications where measured revenue productivity dispersion is used as an indicator of misallocation. Our empirical evidence suggests, under iso-elastic demand, measured dispersion may indicate either distortions or variation in demand shocks and technical effciency or all of the above.

Citation

Foster, Lucia, Cheryl Grim, John Haltiwanger, and Zoltan Wolf. 2016. "Firm-Level Dispersion in Productivity: Is the Devil in the Details?" American Economic Review, 106 (5): 95-98. DOI: 10.1257/aer.p20161023

Additional Materials

JEL Classification

  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • L25 Firm Performance: Size, Diversification, and Scope