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Inverse Ramsey Problem of the Resource Misallocation Effect on Aggregate Productivity

  • Shuhei, Aoki

This paper examines the extent to and the conditions under which resource misallocation negatively affects aggregate productivity in a model of heterogeneous firms to the highest degree. I analytically derive the minimum aggregate total factor productivity (TFP) under resource misallocation, when frictions are modeled as the taxes levied on a firm's output, and the range of these taxes is provided. I find that the lower limit of the minimum aggregate TFP is the TFP under perfect substitute goods and constant returns to scale technology. Further, the minimum aggregate TFP is achieved when the proportion of firms in the lowest tax level is small or when the TFP level of these firms is low.

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File URL: https://mpra.ub.uni-muenchen.de/7930/1/MPRA_paper_7930.pdf
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File URL: https://mpra.ub.uni-muenchen.de/7956/1/MPRA_paper_7956.pdf
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File URL: https://mpra.ub.uni-muenchen.de/10973/2/MPRA_paper_10973.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7930.

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Date of creation: 26 Mar 2008
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Handle: RePEc:pra:mprapa:7930
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  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  2. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  3. Charles I. Jones, 2008. "Intermediate Goods, Weak Links, and Superstars: A Theory of Economic Development," NBER Working Papers 13834, National Bureau of Economic Research, Inc.
  4. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
  5. Laura Alfaro & Andrew Charlton & Fabio Kanczuk, 2008. "Plant-Size Distribution and Cross-Country Income Differences," NBER Working Papers 14060, National Bureau of Economic Research, Inc.
  6. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  7. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
  8. Parente, Stephen L. & Prescott, Edward C., 2005. "A Unified Theory of the Evolution of International Income Levels," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 21, pages 1371-1416 Elsevier.
  9. Richard Rogerson & Diego Restuccia, 2004. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," 2004 Meeting Papers 69, Society for Economic Dynamics.
  10. Fumio Hayashi & Edward C. Prescott, 2008. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 573-632, 08.
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