Market Failures and Misallocation

Ajay Shenoy

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: I develop a method to measure and separate the production misallocation caused by failures in factor markets versus financial markets. When I apply the method to rice farming villages in Thailand I find surprisingly little misallocation. Optimal reallocation would increase output in most villages by less than 15 percent. By 2006 most misallocation comes from factor market failures. I derive a decomposition of aggregate growth that accounts for misallocation. Declining misallocation contributes little to growth compared to factor accumulation and rising farm productivity. I use a government credit intervention to test my measures. I confirm that credit causes a statistically significant decrease in only financial market misallocation.

Keywords: Social and Behavioral Sciences; misallocation; financial market imperfections; Thailand; agriculture (search for similar items in EconPapers)
Date: 2015-03-25
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (1)

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Journal Article: Market failures and misallocation (2017)
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