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Persistent Productivity Differences Between Firms

  • TAKII Katsuya

We construct a dynamic assignment model that explains persistent productivity differences between firms. Large expected organization capital (firm-specific knowledge) attracts skilled workers, who help to accumulate organization capital. Accumulated large organization capital leads to good performances, which, in turn, confirm high expectations. It is shown that the sluggish movement of expected productivity that occurs through this positive feedback can play a role similar to an unobserved fixed effect in the productivity dynamics. Our calibration exercises suggest that the proposed feedback accompanied by amplification mechanisms inherent in the assignment model can explain a major part of the observed persistence and disparity in productivity.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11048.

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Length: 66 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:eti:dpaper:11048
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