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 forecast errors significantly affect investment and hiring decisions, leading to dispersion in the marginal revenue products of capital (MRPK) and labor (MRPL). Firms that underpredict demand exhibit MRPK and MRPL levels that are 5.7% and 4.1% higher, respectively, than those observed when demand forecasts are accurate, reflecting underinvestment and underhiring. These effects are persistent over time and are not solely driven by 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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