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Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries

Author

Listed:
  • Carrillo, Paul

    (George Washington University)

  • Donaldson, Dave

    (Massachusetts Institute of Technology and NBER)

  • Pomeranz, Dina

    (University of Zurich)

  • Singhal, Monica

    (University of California, Davis, and NBER)

Abstract

This paper develops new tools to study misallocation that do not require assumptions about the heterogeneity of firms’ technologies. We show how features of the distribution of marginal products can be identified from exogenous variation in firms’ input use and used both to test for misallocation and to quantify its resulting welfare losses. We apply this method to a setting with exogenous demand shocks from public procurement contracts for construction services in Ecuador. Our results reject the null of efficiency but our estimates of the resulting welfare losses from misallocation are small.

Suggested Citation

  • Carrillo, Paul & Donaldson, Dave & Pomeranz, Dina & Singhal, Monica, 2026. "Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries," IZA Discussion Papers 18612, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18612
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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
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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