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Information, Misallocation and Aggregate Productivity

Author

Listed:
  • Venky Venkateswaran

    (NYU Stern School of Business)

  • Hugo A. Hopenhayn

    (UCLA)

  • Joel David

    (USC)

Abstract

We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms learn from both private sources and imperfectly informative stock market prices. We devise a novel calibration strategy that uses a combination of firm-level production and stock market data to pin down the information structure in the economy. Applying this methodology to data from the US, China, and India reveals substantial losses in productivity and output due to informational frictions - even when only one factor, namely capital, is subject to the friction. Our estimates for these losses range from 5-19% for productivity and 8-28% for output in China and India, and are smaller, though still significant, in the US. Losses are substantially higher when labor decisions are also made under imperfect information. Private learning plays a significant role in mitigating uncertainty and improving aggregate outcomes; learning from financial markets contributes little, even in the US.

Suggested Citation

  • Venky Venkateswaran & Hugo A. Hopenhayn & Joel David, 2014. "Information, Misallocation and Aggregate Productivity," 2014 Meeting Papers 526, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:526
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    References listed on IDEAS

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    1. Nicholas Bloom & Benn Eifert & Aprajit Mahajan & David McKenzie & John Roberts, 2013. "Does Management Matter? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 1-51.
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    5. 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.
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    7. Artyom Durnev & Randall Morck & Bernard Yeung & Paul Zarowin, 2003. "Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 797-836, December.
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    Cited by:

    1. Hikaru Saijo & Cosmin Ilut, 2015. "Learning, Confidence, and Business Cycles," 2015 Meeting Papers 917, Society for Economic Dynamics.
    2. David Zeke & Robert Kurtzman, 2016. "Accounting for Productivity Dispersion over the Business Cycle," 2016 Meeting Papers 482, Society for Economic Dynamics.
    3. repec:eee:eneeco:v:69:y:2018:i:c:p:270-279 is not listed on IDEAS
    4. Joel M. David & Venky Venkateswaran, 2017. "The Sources of Capital Misallocation," NBER Working Papers 23129, National Bureau of Economic Research, Inc.
    5. Hernandez, M. & Britos, B. & Robles, M. & Trupkin, D., 2018. "Land market distortions: Theory and evidence from Guatemala," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277031, International Association of Agricultural Economists.
    6. Joel M. David & Ina Simonovska, 2016. "Correlated Beliefs, Returns, and Stock Market Volatility," NBER Chapters,in: NBER International Seminar on Macroeconomics 2015 National Bureau of Economic Research, Inc.
    7. Kun Li, 2016. "Privatization, Distortions, and Productivity," 2016 Meeting Papers 993, Society for Economic Dynamics.
    8. Tatsuro Senga, 2014. "A New Look at Uncertainty Shocks: Imperfect Information and Misallocation," UTokyo Price Project Working Paper Series 042, University of Tokyo, Graduate School of Economics.
    9. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    10. Venky Venkateswaran & Joel David, 2017. "Capital Misallocation: Frictions or Distortions?," 2017 Meeting Papers 1636, Society for Economic Dynamics.
    11. Robert Ulbricht & Ludwig Straub, 2015. "Endogenous Uncertainty and Credit Crunches," 2015 Meeting Papers 199, Society for Economic Dynamics.
    12. José Asturias & Manuel García-Santana & Roberto Ramos, 2016. "Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India," Working Papers 907, Barcelona Graduate School of Economics.
    13. Jose Maria Barrero, 2017. "Firm Dynamics with Subjective Beliefs," 2017 Meeting Papers 367, Society for Economic Dynamics.
    14. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    15. David Lagakos & Mushfiq Mobarak & Michael Waugh, 2018. "The Welfare Effects of Encouraging Rural-Urban Migration," Working Papers 2018-002, Human Capital and Economic Opportunity Working Group.
    16. Daniel A Dias & Christine J. Richmond & Carlos Robalo Marques, 2016. "A Tale of Two Sectors; Why is Misallocation Higher in Services than in Manufacturing?," IMF Working Papers 16/220, International Monetary Fund.
    17. Shenoy, Ajay, 2017. "Market failures and misallocation," Journal of Development Economics, Elsevier, vol. 128(C), pages 65-80.
    18. Tatsuro Senga, 2014. "A New Look at Uncertainty Shocks: Imperfect Information and Misallocation," UTokyo Price Project Working Paper Series 042, University of Tokyo, Graduate School of Economics.
    19. Zheng Li & Jorge Martinez-Vazquez, 2018. "Fiscal decentralization and interregional capital misallocation: Evidence from China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1816, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    20. Benjamin Bennett & René Stulz & Zexi Wang, 2017. "Does the Stock Market Make Firms More Productive?," NBER Working Papers 24102, National Bureau of Economic Research, Inc.
    21. Krislert Samphantharak & Robert M. Townsend, 2018. "Risk and Return in Village Economies," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 1-40, February.
    22. George-Marios Angeletos & Fabrice Collard & Harris Dellas, 2014. "Quantifying Confidence," NBER Working Papers 20807, National Bureau of Economic Research, Inc.
    23. Jules H. van Binsbergen & Christian C. Opp, 2017. "Real Anomalies," NBER Working Papers 23238, National Bureau of Economic Research, Inc.
    24. Hugo A. Hopenhayn, 2014. "On the Measure of Distortions," NBER Working Papers 20404, National Bureau of Economic Research, Inc.
    25. repec:eee:macchp:v2-1065 is not listed on IDEAS

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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