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Scalable versus Productive Technologies

Author

Listed:
  • Joachim Hubmer

    (University of Pennsylvania)

  • Mons Chan

    (Queen’s University)

  • Serdar Ozkan

    (Federal Reserve Bank of St. Louis, University of Toronto)

  • Sergio Salgado

    (University of Pennsylvania)

  • Guangbin Hong

    (University of Chicago)

Abstract

Do larger firms have more productive technologies, are their technologies more scalable, or both? We use administrative data on Canadian and US firms to estimate a joint distribution of output elasticities of capital, labor, and intermediate inputs—thus, returns to scale (RTS)—along with total factor productivity (TFP). We find significant heterogeneity in RTS across firms within industries. Furthermore, larger firms operate technologies with higher RTS, whereas the largest firms do not exhibit the highest TFP. Higher RTS for large firms are entirely driven by higher intermediate input elasticities. Descriptively, these align with higher intermediate input revenue shares. We also show that high-RTS firms grow faster, pay higher wages, and are owned by wealthier households. We then incorporate RTS heterogeneity into the workhorse model of endogenous entrepreneurship that matches the observed heterogeneity in TFP and RTS. We find that the efficiency losses from financial frictions are more than twice as large compared to a conventional calibration that attributes all heterogeneity to TFP and assumes a common RTS parameter.

Suggested Citation

  • Joachim Hubmer & Mons Chan & Serdar Ozkan & Sergio Salgado & Guangbin Hong, 2024. "Scalable versus Productive Technologies," PIER Working Paper Archive 24-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:24-036
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Production function heterogeneity; returns to scale; misallocation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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