Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries

Paul Carrillo (), Dave Donaldson (), Dina Pomeranz () and Monica Singhal ()
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Paul Carrillo: George Washington University
Dave Donaldson: Massachusetts Institute of Technology and NBER
Dina Pomeranz: University of Zurich
Monica Singhal: University of California, Davis, and NBER

No 18612, IZA Discussion Papers from IZA Network @ LISER

Abstract: This paper develops new tools to study misallocation that do not require assumptions about the heterogeneity of firms’ technologies. We show how features of the distribution of marginal products can be identified from exogenous variation in firms’ input use and used both to test for misallocation and to quantify its resulting welfare losses. We apply this method to a setting with exogenous demand shocks from public procurement contracts for construction services in Ecuador. Our results reject the null of efficiency but our estimates of the resulting welfare losses from misallocation are small.

Keywords: procurement; misallocation; firms (search for similar items in EconPapers)
JEL-codes: C14 D24 D61 H57 O12 (search for similar items in EconPapers)
Date: 2026-04
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