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Identifying productivity when it is a factor of production

Zach Flynn

RAND Journal of Economics, 2020, vol. 51, issue 2, 496-530

Abstract: Economists typically model a plant's productivity as an exogenous characteristic, but the people who run and work at manufacturing plants make choices, at a cost, that affect plant productivity. I develop a method to partially identify the productivity distribution when such choices determine productivity. The method uses a monotone comparative static result I prove in a general economic model. It does not require instruments or timing assumptions. I use the method to study the effect of implementing market‐based pricing on productivity in the electricity generation industry.

Date: 2020
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