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Technology choice and endogenous productivity dispersion over the business cycles

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  • Tian, Can

Abstract

Various empirical works have shown that dispersion of firm-level profitability is significantly countercyclical. I incorporate firms' technology adoption decision into firm dynamics model with business cycle features to explain these empirical findings both qualitatively and quantitatively. The option of endogenous exiting and credit constraint jointly play an important role in motivating firms' risk taking behavior. The model predicts that relatively small sized firms are more likely to take risk, and that the dispersion measured as the variance/standard deviation of firm-level profitability is larger in recessions, which are consistent to the data.

Suggested Citation

  • Tian, Can, 2011. "Technology choice and endogenous productivity dispersion over the business cycles," MPRA Paper 34480, University Library of Munich, Germany, revised 02 Nov 2011.
  • Handle: RePEc:pra:mprapa:34480
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    File URL: https://mpra.ub.uni-muenchen.de/35951/2/MPRA_paper_35951.pdf
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    References listed on IDEAS

    as
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    2. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Paper series 27_10, Rimini Centre for Economic Analysis.
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    4. Natarajan Balasubramanian & Jagadeesh Sivadasan, 2009. "Capital Resalability, Productivity Dispersion, and Market Structure," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 547-557, August.
    5. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2012. "Really Uncertain Business Cycles," NBER Working Papers 18245, National Bureau of Economic Research, Inc.
    6. Dhawan, Rajeev, 2001. "Firm size and productivity differential: theory and evidence from a panel of US firms," Journal of Economic Behavior & Organization, Elsevier, vol. 44(3), pages 269-293, March.
    7. Ouyang, Min, 2009. "The scarring effect of recessions," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 184-199, March.
    8. Rüdiger Bachmann & Christian Bayer, 2011. "Uncertainty Business Cycles - Really?," NBER Working Papers 16862, National Bureau of Economic Research, Inc.
    9. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
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    13. N/A, 2009. "On the Recession," Local Economy, London South Bank University, vol. 24(3), pages 253-253, May.
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    Cited by:

    1. Mehkari, M. Saif, 2016. "Uncertainty shocks in a model with mean-variance frontiers and endogenous technology choices," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 71-98.

    More about this item

    Keywords

    Firm Dynamics; Business Cycles; Countercyclical Dispersion;

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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