How to Use Natural Experiments to Estimate Misallocation

David Sraer and David Thesmar

American Economic Review, 2023, vol. 113, issue 4, 906-38

Abstract: We propose a method to estimate the effect of firm policies (e.g., bankruptcy laws) on allocative efficiency using (quasi-)experimental evidence. Our approach takes general equilibrium effects into account and requires neither a structural estimation nor a precise assumption on how the experiment affects firms. Our aggregation formula relies on treatment effects of the policy on the distribution of output-to-capital ratios, which are easily estimated. We show this method is valid for a large class of commonly used models in macrofinance. We apply it to the French banking deregulation episode of the mid-1980s and find an increase in aggregate TFP of 5 percent.

JEL-codes: G21 G24 G28 G31 G32 H25 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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DOI: 10.1257/aer.20190609

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