Scalable versus Productive Technologies

Joachim Hubmer (), Mons Chan, Serdar Ozkan, Sergio Salgado () and Guangbin Hong
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Joachim Hubmer: University of Pennsylvania
Sergio Salgado: University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: Do larger firms have more productive technologies, are their technologies more scalable, or both? We use administrative data on Canadian and US firms to estimate a joint distribution of output elasticities of capital, labor, and intermediate inputs—thus, returns to scale (RTS)—along with total factor productivity (TFP). We find significant heterogeneity in RTS across firms within industries. Furthermore, larger firms operate technologies with higher RTS, whereas the largest firms do not exhibit the highest TFP. Higher RTS for large firms are entirely driven by higher intermediate input elasticities. Descriptively, these align with higher intermediate input revenue shares. We also show that high-RTS firms grow faster, pay higher wages, and are owned by wealthier households. We then incorporate RTS heterogeneity into the workhorse model of endogenous entrepreneurship that matches the observed heterogeneity in TFP and RTS. We find that the efficiency losses from financial frictions are more than twice as large compared to a conventional calibration that attributes all heterogeneity to TFP and assumes a common RTS parameter.

Keywords: Production function heterogeneity; returns to scale; misallocation (search for similar items in EconPapers)
JEL-codes: E22 L11 L25 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2024-11-21
New Economics Papers: this item is included in nep-eff, nep-ent, nep-lma, nep-sbm and nep-tid
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Working Paper: Scalable versus Productive Technologies (2024)
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