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Heterogeneous Firm Expectations and Misallocation

Author

Listed:
  • Gautier, Erwan
  • Hubert, Paul
  • Martin-Baillon, Alaïs

Abstract

This paper examines how heterogeneity in firms’ forecasting accuracy contributes to resource misallocation. Using French quarterly survey data on firm expectations matched with administrative data, we show that forecast errors significantly affect investment and hiring decisions, leading to dispersion in the marginal revenue products of capital (MRPK) and labor (MRPL). Firms that underpredict demand exhibit MRPK and MRPL levels that are 5.7% and 4.1% higher, respectively, than those observed when demand forecasts are accurate, reflecting underinvestment and underhiring. These effects are persistent over time and are not solely driven by idiosyncratic shocks.

Suggested Citation

  • Gautier, Erwan & Hubert, Paul & Martin-Baillon, Alaïs, 2025. "Heterogeneous Firm Expectations and Misallocation," CEPR Discussion Papers 20944, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:20944
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    File URL: https://cepr.org/publications/DP20944
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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