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Allocating Misallocation: Decomposing Measures of Aggregate Allocative Efficiency

Author

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  • G. Jacob Blackwood
  • John Haltiwanger
  • Zoltan Wolf

Abstract

We explore sources of measured misallocation using establishment data from U.S. manufacturing industries. We decompose standard revenue productivity dispersion statistics into contributions by dispersion in revenue margins over costs and dispersion in input cost shares across plants. We establish a formal link between these components and measured allocative efficiency. The results indicate the components contribute similarly to apparent rising misallocation in US manufacturing. We use the mapping between distortions that influence these distinct components to explore the relationship between inferred distortions and mechanisms that influence one or both sources of revenue productivity dispersion. Finally, we show rising misallocation in the US manufacturing sector in the last several decades is pervasive, and yet a few industries account for over half of the aggregate decline.

Suggested Citation

  • G. Jacob Blackwood & John Haltiwanger & Zoltan Wolf, 2026. "Allocating Misallocation: Decomposing Measures of Aggregate Allocative Efficiency," Working Papers 26-26, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:26-26
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    File URL: https://www2.census.gov/library/working-papers/2026/adrm/ces/CES-WP-26-26.pdf
    File Function: First version, 2026
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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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