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Rounding error and misallocation

Author

Listed:
  • Jing Hang
  • Di Lu

    (Audencia Business School)

  • Wenbiao Sha

Abstract

Measurement error poses a challenge to measuring misallocation. Using Chinese manufacturing data (1998–2007), we exploit rounding — a directly observable form of measurement error — in firms' reported labor, capital, and value added. The share of values ending in zero exceeds 20% for each variable, more than double the 10% uniform benchmark. Within industry-year cells, the standard deviation of log labor productivity is 0.021 higher among firms whose reports end in zero than among firms ending in other non-rounding digits, with a sharply larger differential in small-firm industries. At the aggregate level, including rounded observations lowers estimated allocative efficiency by 1.6 percentage points.

Suggested Citation

  • Jing Hang & Di Lu & Wenbiao Sha, 2026. "Rounding error and misallocation," Post-Print hal-05631098, HAL.
    • Handle: RePEc:hal:journl:hal-05631098
    DOI: 10.1016/j.econlet.2026.113038
    Note: View the original document on HAL open archive server: https://hal.science/hal-05631098v1
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