Productivity Shocks and Input Misallocation: A Decomposition

Davide Luparello

Papers from arXiv.org

Abstract: This paper asks how much input misallocation productivity uncertainty generates and at which stage of input decisions it arises. I separate revenue productivity by when each component is revealed and trace each into the gap between an input's marginal revenue product and its price. In six European countries, shocks revealed after an input is committed account for 20 percent of capital gap dispersion and 5 percent of labor gap dispersion. An unanticipated one percent rise in productivity raises the capital gap by 0.92 percent and the labor gap by 0.19 percent, because most of the shock passes into the wage.

Date: 2023-06, Revised 2026-09
New Economics Papers: this item is included in nep-eec, nep-eff and nep-fdg
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