IDEAS home Printed from https://ideas.repec.org/a/oup/qjecon/v131y2016i2p943-1005..html
   My bibliography  Save this article

Information, Misallocation, and Aggregate Productivity

Author

Listed:
  • Joel M. David
  • Hugo A. Hopenhayn
  • Venky Venkateswaran

Abstract

We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms look to a variety of noisy information sources when making input decisions. We devise a novel empirical strategy that uses a combination of firm-level production and stock market data to pin down the information structure in the economy. Even when only capital is chosen under imperfect information, applying this methodology to data from the United States, China, and India reveals substantial losses in productivity and output due to the informational friction. Our estimates for these losses range from 7% to 10% for productivity and 10% to 14% for output in China and India, and are smaller, though still significant, in the United States. Losses are substantially higher when labor decisions are also made under imperfect information. We find that firms turn primarily to internal sources for information; learning from financial markets contributes little, even in the United States. JEL Codes: O11, O16, O47, E44.

Suggested Citation

  • Joel M. David & Hugo A. Hopenhayn & Venky Venkateswaran, 2016. "Information, Misallocation, and Aggregate Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 131(2), pages 943-1005.
  • Handle: RePEc:oup:qjecon:v:131:y:2016:i:2:p:943-1005.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/qje/qjw006
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nicholas Bloom & Benn Eifert & Aprajit Mahajan & David McKenzie & John Roberts, 2013. "Does Management Matter? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 1-51.
    2. Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654.
    3. Albagli, Elias & Hellwig, Christian & Tsyvinski, Aleh, 2011. "Information Aggregation, Investment, and Managerial Incentives," CEPR Discussion Papers 8539, C.E.P.R. Discussion Papers.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    5. Asker, John & Collard-Wexler, Allan & De Loecker, Jan, 2011. "Productivity volatility and the misallocation of resources in developing economies," CEPR Discussion Papers 8469, C.E.P.R. Discussion Papers.
    6. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    7. Artyom Durnev & Randall Morck & Bernard Yeung & Paul Zarowin, 2003. "Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 797-836, December.
    8. Yuanzhi Luo, 2005. "Do Insiders Learn from Outsiders? Evidence from Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 60(4), pages 1951-1982, August.
    9. Thomas Mayer, 1959. "Plant and Equiptment Lead Times," The Journal of Business, University of Chicago Press, vol. 33, pages 127-127.
    10. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joel M. David & Venky Venkateswaran, 2017. "The Sources of Capital Misallocation," NBER Working Papers 23129, National Bureau of Economic Research, Inc.
    2. Kun Li, 2016. "Privatization, Distortions, and Productivity," 2016 Meeting Papers 993, Society for Economic Dynamics.
    3. Tatsuro Senga, 2014. "A New Look at Uncertainty Shocks: Imperfect Information and Misallocation," UTokyo Price Project Working Paper Series 042, University of Tokyo, Graduate School of Economics.
    4. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    5. Robert Ulbricht & Ludwig Straub, 2015. "Endogenous Uncertainty and Credit Crunches," 2015 Meeting Papers 199, Society for Economic Dynamics.
    6. Asturias, Jose & García-Santana, Manuel & Ramos Magdaleno, Roberto, 2016. "Competition and the welfare gains from transportation infrastructure: Evidence from the Golden Quadrilateral of India," CEPR Discussion Papers 11283, C.E.P.R. Discussion Papers.
    7. Jose Maria Barrero, 2017. "Firm Dynamics with Subjective Beliefs," 2017 Meeting Papers 367, Society for Economic Dynamics.
    8. David, Joel M. & Simonovska, Ina, 2016. "Correlated beliefs, returns, and stock market volatility," Journal of International Economics, Elsevier, vol. 99(S1), pages 58-77.
    9. David Lagakos & Mushfiq Mobarak & Michael Waugh, 2018. "The Welfare Effects of Encouraging Rural-Urban Migration," Working Papers 2018-002, Human Capital and Economic Opportunity Working Group.
    10. Daniel A Dias & Christine J. Richmond & Carlos Robalo Marques, 2016. "A Tale of Two Sectors; Why is Misallocation Higher in Services than in Manufacturing?," IMF Working Papers 16/220, International Monetary Fund.
    11. Shenoy, Ajay, 2017. "Market failures and misallocation," Journal of Development Economics, Elsevier, vol. 128(C), pages 65-80.
    12. Daniel A. Dias & Carlos Robalo Marques & Christine Richmond, 2018. "A Tale of Two Sectors : Why is Misallocation Higher in Services than in Manufacturing?," International Finance Discussion Papers 1229, Board of Governors of the Federal Reserve System (U.S.).
    13. Krislert Samphantharak & Robert M. Townsend, 2018. "Risk and Return in Village Economies," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 1-40, February.
    14. George-Marios Angeletos & Fabrice Collard & Harris Dellas, 2014. "Quantifying Confidence," NBER Working Papers 20807, National Bureau of Economic Research, Inc.
    15. Hugo A. Hopenhayn, 2014. "On the Measure of Distortions," NBER Working Papers 20404, National Bureau of Economic Research, Inc.
    16. repec:eee:macchp:v2-1065 is not listed on IDEAS
    17. Hikaru Saijo & Cosmin Ilut, 2015. "Learning, Confidence, and Business Cycles," 2015 Meeting Papers 917, Society for Economic Dynamics.
    18. repec:eee:eneeco:v:69:y:2018:i:c:p:270-279 is not listed on IDEAS
    19. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    20. Benjamin Bennett & René Stulz & Zexi Wang, 2017. "Does the Stock Market Make Firms More Productive?," NBER Working Papers 24102, National Bureau of Economic Research, Inc.
    21. Jules H. van Binsbergen & Christian C. Opp, 2017. "Real Anomalies," NBER Working Papers 23238, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:131:y:2016:i:2:p:943-1005.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.