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

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  • Allan Collard-Wexler

    (New York University)

Abstract

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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  • Allan Collard-Wexler, 2010. "Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry," 2010 Meeting Papers 105, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:105
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    Cited by:

    1. Tomlin, Ben, 2014. "Exchange rate fluctuations, plant turnover and productivity," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 12-28.
    2. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    3. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Computational Methods for Oblivious Equilibrium," Research Papers 1969, Stanford University, Graduate School of Business.
    4. Tarek A Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2019. "Firm-Level Political Risk: Measurement and Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 134(4), pages 2135-2202.
    5. Amit Gandhi & Salvador Navarro & David Rivers, 2011. "On the Identification of Production Functions: How Heterogeneous is Productivity?," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20119, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    6. Pierre‐Philippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2012. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection," Econometrica, Econometric Society, vol. 80(6), pages 2543-2594, November.
    7. Emannuel Dhyne & Joep Konings & Joep Konings & Stijn Vanormelingen,, 2018. "IT and productivity: A firm level analysis," Working Paper Research 346, National Bank of Belgium.
    8. Asker, John & Collard-Wexler, Allan & De Loecker, Jan, 2011. "Productivity volatility and the misallocation of resources in developing economies," CEPR Discussion Papers 8469, C.E.P.R. Discussion Papers.
    9. Weintraub, Gabriel Y. & Benkard, C. Lanier & Van Roy, Benjamin, 2007. "Markov Perfect Industry Dynamics with Many Firms," Research Papers 1919r, Stanford University, Graduate School of Business.
    10. Vivek Farias & Bar Ifrach & Gabriel Weintraub, 2012. "A Framework for Dynamic Oligopoly in Concentrated Industries," 2012 Meeting Papers 505, Society for Economic Dynamics.
    11. Dhyne, Emmanuel & Konings, Jozef & Van den bosch, Jeroen & Vanormelingen, Stijn, 2018. "The Return on Information Technology: Who Benefits Most?," CEPR Discussion Papers 13246, C.E.P.R. Discussion Papers.
    12. Byford, Martin C. & Gans, Joshua S., 2019. "Strengthening a weak rival for a fight," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 1-17.
    13. Amit Gandhi & Salvador Navarro & David Rivers, 2017. "How Heterogeneous is Productivity? A Comparison of Gross Output and Value Added," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 201727, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    14. Nguyen, Huong Quynh, 2017. "Business reforms and total factor productivity in Vietnamese manufacturing," Journal of Asian Economics, Elsevier, vol. 51(C), pages 33-42.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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