Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries

Paul Carrillo, Dave Donaldson, Dina Pomeranz and Monica Singhal

No 10485, CESifo Working Paper Series from CESifo

Abstract: How costly is the misallocation of production that we might expect to result from distortions such as market power, incomplete contracts, taxes, regulations, or corruption? This paper develops new tools for the study of misallocation that place minimal assumptions on firms’ underlying technologies and behavior. We show how features of the distribution of marginal products can be identified from exogenous variation in firms’ input use, and how these features can be used both to test for misallocation and to quantify the welfare losses that it causes. We then consider an application in which thousands of firms experience demand shocks derived from a lottery-based assignment of public procurement contracts for construction services in Ecuador. Using administrative tax data about these firms, we reject the null of efficiency but estimate that the welfare losses resulting from misallocation are only 1.6% relative to the first-best. Standard parametric assumptions applied to the same setting would suggest losses that are at least an order of magnitude larger.

Keywords: allocative efficiency; misallocation; aggregate productivity (search for similar items in EconPapers)
JEL-codes: D24 D61 H57 L10 O40 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-eff and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp10485.pdf (application/pdf)

Related works:
Working Paper: Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10485

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().