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Misallocation in the Market for Inputs

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  • Ezra Oberfield

    (Princeton University)

Abstract

This paper studies an environment in which the network structure of production - who buys inputs from whom - is determined endogenously and is the key determinant of aggregate productivity. I address two questions: How do contracting frictions shape the equilibrium network structure? And conversely, how does an economy's network structure shape the impact of contracting frictions? In this environment, a more severe contracting friction may cause producers to favor and direct search effort toward the "wrong" suppliers, leading them to use lower-productivity techniques or higher-cost inputs. The impact of a marginal reduction in contracting frictions depends on the length of supply chains. When supply chains are longer, and wedge between buyer-supplier pairs is magnified. In turn, the length of supply chains in equilibrium depends on the the severity of contracting frictions. For some parameter values, network externalities and thick-market effects amplify the impact on aggregate productivity.

Suggested Citation

  • Ezra Oberfield, 2014. "Misallocation in the Market for Inputs," 2014 Meeting Papers 1226, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:1226
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    Cited by:

    1. Kalina Manova & Glenn Magerman & Emmanuel Dhyne & Andreas Moxnes & Andrew Bernard, 2017. "The Origins of Firm Heterogeneity: A Production Network Approach," 2017 Meeting Papers 487, Society for Economic Dynamics.
    2. Matthew Elliott & Benjamin Golub & Matthew V. Leduc, 2020. "Supply Network Formation and Fragility," Papers 2001.03853, arXiv.org, revised Feb 2021.
    3. Lucie Gadenne & Tushar Nandi & Roland Rathelot, 2019. "Taxation and Supplier Networks: Evidence from India," IFS Working Papers W19/21, Institute for Fiscal Studies.
    4. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    5. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    6. Bau, Natalie & Matray, Adrien, 2020. "Misallocation and Capital Market Integration: Evidence From India," CEPR Discussion Papers 14282, C.E.P.R. Discussion Papers.
    7. Clement Imbert & Marlon Seror & Yifan Zhang & Stephan Yanos Zylberberg, 2018. "Migrants and Firms: Evidence from China," Bristol Economics Discussion Papers 19/713, School of Economics, University of Bristol, UK.
    8. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    9. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    10. Stephie Fried & David Lagakos, 2020. "Electricity and Firm Productivity: A General-Equilibrium Approach," NBER Working Papers 27081, National Bureau of Economic Research, Inc.
    11. Michael Alexeev & Andrey Chernyavskiy, 2019. "The impact of institutional quality on manufacturing sectors in Russia: panel data analysis," CAEPR Working Papers 2019-004, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    12. Tomoo Kikuchi & Kazuo Nishimura & John Stachurski & Junnan Zhang, 2019. "Coase Meets Bellman: Dynamic Programming for Production Networks," Papers 1908.10557, arXiv.org, revised May 2021.

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