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Products and Productivity

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  • Andrew Bernard
  • Stephen Redding
  • Peter Schott

Abstract

When firms make decisions about which product to manufacture at a more disaggregated level than observed in the data, measured firm productivity will reflect both true differences in productivity and non-random decisions about which products to manufacture. This paper examines a model of industry equilibrium where firms endogenously sort across products. We use the model to characterize the direction and magnitude of the resulting bias in productivity and to trace the implications for evaluating the aggregate effects of policy reforms such as industry deregulation. The endogenous sorting of firms across products provides a new source of reallocation and leads to biased measures of deregulation’s impact on firm and aggregate productivity.

Suggested Citation

  • Andrew Bernard & Stephen Redding & Peter Schott, 2008. "Products and Productivity," Working Papers 08-22, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:08-22
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    References listed on IDEAS

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    More about this item

    Keywords

    Product choice; Productivity measurement; Firm heterogeneity; Industry deregulation;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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