Heterogeneous Firm Expectations and Misallocation

Erwan Gautier, Paul Hubert and Martin-Baillon, Alaïs

No 20944, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines how heterogeneity in firms’ forecasting accuracy contributes to resource misallocation. Using French quarterly survey data on firm expectations matched with administrative data, we show that firms make forecast errors that significantly affect investment and hiring decisions. These decisions, in turn, lead to differences in marginal revenue product of capital (MRPK) and labor (MRPL). Heterogeneity in forecasting accuracy thus generates dispersion in MRPK and MRPL. We show that when firms underpredict their demand, their MRPK increases by 5.4% and MRPL by 4.1% compared to when they forecast their demand accurately. These effects are persistent over time and do not only reflect the existence of idiosyncratic shocks.

Keywords: Heterogeneous firms; Capital misallocation (search for similar items in EconPapers)
JEL-codes: D22 D25 D84 (search for similar items in EconPapers)
Date: 2025-12
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