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Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry

  • Allan Collard-Wexler

    (New York University)

Plant level productivity in the ready-mix concrete sector is highly dispersed, whereby a plant in the 90th percentile of the distribution produces twice the value added than a plant in the 10th percentile. Is the magnitude of this dispersion real or simply an artifact of mea- surement error? Moreover, why don’t inefficient producers exit the industry? Using a dynamic model of entry and exit, I find that a plant in the highest quintile of productivity has profits are $ 220 000 higher than those in the lowest quintile of productivity, i.e. a plant in the top quintile produces 1.5 times more value added than a plant in the bottom quintile of productivity, when both plants use the same inputs. Exit of inefficient producers is slowed by two factors. First, sunk costs are quite large in the ready-mix concrete industry, so a firm will remain in the industry even when it is currently making sub- stantial losses. Second, plant productivity is very volatile, so current productivity is a weak signal of future profitability.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 105.

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Date of creation: 2010
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Handle: RePEc:red:sed010:105
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  1. Dunne, Timothy & Klimek, Shawn D. & Roberts, Mark J., 2005. "Exit from regional manufacturing markets: The role of entrant experience," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 399-421, June.
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  3. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, 09.
  4. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  5. Martin Pesendorfer & Philipp Schmidt-Dengler, 2008. "Asymptotic Least Squares Estimators for Dynamic Games -super-1," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 901-928.
  6. Arpad Abraham & Kirk White, 2006. "The Dynamics of Plant-Level Productivity in U.S. Manufacturing," Working Papers 06-20, Center for Economic Studies, U.S. Census Bureau.
  7. Allan Collard-Wexler, 2006. "Demand Fluctuations and Plant Turnover in the Ready-Mix Concrete Industry," Working Papers 06-25, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  9. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
  10. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
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