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Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry

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  • Allan Collard-Wexler

    (New York University)

Abstract

Plant level productivity in the ready-mix concrete sector is highly dispersed, whereby a plant in the 90th percentile of the distribution produces twice the value added than a plant in the 10th percentile. Is the magnitude of this dispersion real or simply an artifact of mea- surement error? Moreover, why don’t inefficient producers exit the industry? Using a dynamic model of entry and exit, I find that a plant in the highest quintile of productivity has profits are $ 220 000 higher than those in the lowest quintile of productivity, i.e. a plant in the top quintile produces 1.5 times more value added than a plant in the bottom quintile of productivity, when both plants use the same inputs. Exit of inefficient producers is slowed by two factors. First, sunk costs are quite large in the ready-mix concrete industry, so a firm will remain in the industry even when it is currently making sub- stantial losses. Second, plant productivity is very volatile, so current productivity is a weak signal of future profitability.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 105.

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Date of creation: 2010
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Handle: RePEc:red:sed010:105

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  1. Kirk White & Arpad Abraham, 2004. "The Dynamics of Plant-level Productivity in U.S. Manufacturing," Computing in Economics and Finance 2004 332, Society for Computational Economics.
  2. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation Of Dynamic Discrete Games," Working Papers wp2004_0413, CEMFI.
  3. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  4. Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business.
  5. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
  6. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  8. Allan Collard-Wexler, 2006. "Demand Fluctuations and Plant Turnover in the Ready-Mix Concrete Industry," Working Papers 06-25, New York University, Leonard N. Stern School of Business, Department of Economics.
  9. Dunne, Timothy & Klimek, Shawn D. & Roberts, Mark J., 2005. "Exit from regional manufacturing markets: The role of entrant experience," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 399-421, June.
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Cited by:
  1. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really uncertain business cycles," LSE Research Online Documents on Economics 51526, London School of Economics and Political Science, LSE Library.
  2. Collard-Wexler, Allan & De Loecker, Jan, 2013. "Reallocation and Technology: Evidence from the U.S. Steel Industry," CEPR Discussion Papers 9331, C.E.P.R. Discussion Papers.
  3. Allan Collard-Wexler & John Asker & Jan De Loecker, 2011. "Productivity Volatility and the Misallocation of Resources in Developing Economies," Working Papers 11-13, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Victor Aguirregabiria & Pedro mira, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers tecipa-297, University of Toronto, Department of Economics.
  5. Pierre Philippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2009. "The productivity advantages of large cities: Distinguishing agglomeration from firm selection," Working Papers 2009-02, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 30 Nov 2010.
  6. Amit Gandhi & Salvador Navarro & David Rivers, 2011. "On the Identification of Production Functions: How Heterogeneous is Productivity?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20119, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  7. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Markov Perfect Industry Dynamics with Many Firms," Research Papers 1919r, Stanford University, Graduate School of Business.
  8. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Computational Methods for Oblivious Equilibrium," Research Papers 1969, Stanford University, Graduate School of Business.

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