Productivity and Misallocation in General Equilibrium

David Baqaee and Emmanuel Farhi

No 24007, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a general theory of aggregation in inefficient economies. We provide non-parametric formulas for aggregating microeconomic shocks in economies with distortions such as taxes, markups, frictions to resource reallocation, financial frictions, and nominal rigidities. We allow for arbitrary elasticities of substitution, returns to scale, factor mobility, and input-output network linkages. We show how to separately measure changes in technical and allocative efficiency. We also show how to compute the social cost of distortions. We pursue applications focusing on firm-level markups in the U.S. We find that improvement in allocative efficiency, due to the reallocation over time of market share to high-markup firms, accounts for about half of aggregate TFP growth over the period 1997-2015. We also find that eliminating the misallocation resulting from the large and dispersed markups estimated in the data would raise aggregate TFP by about 15%, increasing the economy-wide cost of monopoly distortions by two orders of magnitude compared to the famous 0.1% estimate by Harberger (1954). These exact numbers should be interpreted with care since the data is imperfect and requires substantial imputation.

JEL-codes: D24 D33 D42 D43 D5 D50 D57 D61 E01 E1 E25 E52 O4 O41 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

Published as David Rezza Baqaee & Emmanuel Farhi, 2020. "Productivity and Misallocation in General Equilibrium*," The Quarterly Journal of Economics, vol 135(1), pages 105-163.

Downloads: (external link)
http://www.nber.org/papers/w24007.pdf (application/pdf)

Related works:
Journal Article: Productivity and Misallocation in General Equilibrium (2020)
Working Paper: Productivity and Misallocation in General Equilibrium (2018)
Working Paper: Productivity and Misallocation in General Equilibrium (2017)
Working Paper: Productivity and Misallocation in General Equilibrium (2017)
Working Paper: Productivity and misallocation in general equilibrium (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:24007

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24007

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().