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Technology choice and endogenous productivity dispersion over the business cycles

  • Tian, Can
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    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.

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    File URL: https://mpra.ub.uni-muenchen.de/34480/1/MPRA_paper_34480.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/35951/2/MPRA_paper_35951.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34480.

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    Date of creation: 31 May 2011
    Date of revision: 02 Nov 2011
    Handle: RePEc:pra:mprapa:34480
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    1. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really uncertain business cycles," LSE Research Online Documents on Economics 51526, London School of Economics and Political Science, LSE Library.
    2. Hugo A. Hopenhayn & Galina Vereshchagina, 2003. "Risk Taking by Entrepreneurs," RCER Working Papers 500, University of Rochester - Center for Economic Research (RCER).
    3. Higson, C. & Holly, S. & Kattuman, P., 2002. "The cross-sectional dynamics of the US business cycle: 1950-1999," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1539-1555, August.
    4. R?diger Bachmann & Steffen Elstner & Eric R. Sims, 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 217-49, April.
    5. N/A, 2009. "On the Recession," Local Economy, London South Bank University, vol. 24(3), pages 253-253, May.
    6. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
    7. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    8. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
    9. 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.
    10. Min Ouyang, 2005. "The Scarring Effect of Recessions," Working Papers 050609, University of California-Irvine, Department of Economics.
    11. Gertler, M. & Gilchrist, S., 1992. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," Working Papers 92-08, C.V. Starr Center for Applied Economics, New York University.
    12. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Paper Series 27_10, The Rimini Centre for Economic Analysis.
    13. 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.
    14. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
    15. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
    16. Vincenzo Quadrini, 2009. "Entrepreneurship in macroeconomics," Annals of Finance, Springer, vol. 5(3), pages 295-311, June.
    17. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    18. Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
    19. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
    20. Rüdiger Bachmann & Christian Bayer, 2011. "Uncertainty Business Cycles - Really?," NBER Working Papers 16862, National Bureau of Economic Research, Inc.
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