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Resource allocation in multi-divisional multi-product firms

Author

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  • Binlei Gong

    (Zhejiang University)

  • Robin C. Sickles

    (Rice University)

Abstract

This paper is concerned with specifying and estimating the productive characteristics of multidivisional multiproduct companies at the divisional level. In order to accomplish this, we augment division-level information with inputs that are imputed based on profit-maximizing allocations within each division. This study builds on work by De Loecker et al. (2016) as well as Olley and Pakes (1996), Levinsohn and Petrin (2003) and Ackerberg et al. (2015), and extends this work by lifting a key assumption that single- and multi-product/division firms have the same production technique for the same product/segment. We estimate the production function and impute input allocations simultaneously in the absence of this key assumption as well as the constant share constraint of the input portfolio. Finally, our approach is applied to estimate the division-specific productivity of firms that compete in five segments of the global oilfield market to better understand the motivation of firms’ investment, divestment, mergers and acquisitions (M&A).

Suggested Citation

  • Binlei Gong & Robin C. Sickles, 2021. "Resource allocation in multi-divisional multi-product firms," Journal of Productivity Analysis, Springer, vol. 55(2), pages 47-70, April.
    • Handle: RePEc:kap:jproda:v:55:y:2021:i:2:d:10.1007_s11123-020-00595-5
    DOI: 10.1007/s11123-020-00595-5
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    Cited by:

    1. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    2. Zhang, Qizheng & Qian, Zesen & Wang, Shuo & Yuan, Lingran & Gong, Binlei, 2022. "Productivity drain or productivity gain? The effect of new technology adoption in the oilfield market," Energy Economics, Elsevier, vol. 108(C).
    3. Zesen Qian & Lingran Yuan & Shuo Wang & Qizheng Zhang & Binlei Gong, 2021. "Epidemics, Convergence, and Common Prosperity: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(6), pages 117-138, November.
    4. Yuan, Lingran & Zhang, Qizheng & Wang, Shuo & Hu, Weibin & Gong, Binlei, 2022. "Effects of international trade on world agricultural production and productivity: evidence from a panel of 126 countries 1962-2014," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 25(2), March.
    5. Antonio Peyrache & Maria C. A. Silva, 2022. "Efficiency and Productivity Analysis from a System Perspective: Historical Overview," Springer Books, in: Duangkamon Chotikapanich & Alicia N. Rambaldi & Nicholas Rohde (ed.), Advances in Economic Measurement, chapter 0, pages 173-230, Springer.
    6. Lingran Yuan & Shurui Zhang & Shuo Wang & Zesen Qian & Binlei Gong, 2021. "World agricultural convergence," Journal of Productivity Analysis, Springer, vol. 55(2), pages 135-153, April.

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    More about this item

    Keywords

    Multi-divisional; Multi-product firm; Heterogeneous technologies; Productivity and performance; Global oilfield market;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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