Technology choice and endogenous productivity dispersion over the business cycles
AbstractVarious empirical works have shown that dispersion of firm-level profitability is significantly countercyclical. I incorporate firms' technology adoption decision into firm dynamics model with business cycle features to explain these empirical findings both qualitatively and quantitatively. The option of endogenous exiting and credit constraint jointly play an important role in motivating firms' risk taking behavior. The model predicts that relatively small sized firms are more likely to take risk, and that the dispersion measured as the variance/standard deviation of firm-level profitability is larger in recessions, which are consistent to the data.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34480.
Date of creation: 31 May 2011
Date of revision: 02 Nov 2011
Firm Dynamics; Business Cycles; Countercyclical Dispersion;
Find related papers by JEL classification:
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-14 (All new papers)
- NEP-BEC-2011-11-14 (Business Economics)
- NEP-DGE-2011-11-14 (Dynamic General Equilibrium)
- NEP-MAC-2011-11-14 (Macroeconomics)
- NEP-SBM-2011-11-14 (Small Business Management)
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