Aggregate Productivity with Heterogeneous Agents

David Baqaee and Ariel Burstein

No 34176, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a TFP-equivalent measure of aggregate welfare gains and losses for economies with heterogeneous agents. Our measure is the largest scalar by which total factor productivity can be contracted while keeping every household at least indifferent to the status quo. This construction maps arbitrary shocks to the economy into an equivalent aggregate productivity change. Aggregate productivity rises when the post-shock economy can make every household whole and still have resources left over, and falls when doing so requires additional resources. Hence, this measure provides a general-equilibrium analogue of total surplus in cost-benefit analysis. Under standard representative-agent assumptions, it coincides with familiar measures such as real GDP, the sum of compensating variations, and consumption-equivalent welfare. We show how to extend results that hold for welfare in representative-agent settings, including Hulten’s theorem, gains from trade formulas, and deadweight-loss triangles to heterogeneous-agent economies. We characterize this measure in terms of observables, including expenditures and price elasticities, and apply it to study productivity shocks, misallocation from wedges, and trade shocks, both with and without costly redistribution.

JEL-codes: A10 C0 D0 D3 D50 D60 E0 F0 H0 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-upt
Note: EFG IFM ITI PR
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34176.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
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:nbr:nberwo:34176

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34176
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().