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Misallocation in the Market for Inputs

Author

Listed:
  • Ezra Oberfield

    (Princeton University)

  • Johannes Boehm

    (Sciences Po)

Abstract

How costly is weak contract enforcement? Using microdata on Indian manufacturing plants, we show that in states with weaker enforcement, as measured by judicial lags, production and sourcing decisions appear systematically distorted. We document that in those states, plants' expenditure shares on intermediate inputs tend to be lower, with the effect concentrated in industries rely more heavily on inputs that require customization. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The distortions accumulate along supply chains.

Suggested Citation

  • Ezra Oberfield & Johannes Boehm, 2017. "Misallocation in the Market for Inputs," 2017 Meeting Papers 1565, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1565
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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 Sep 2020.
    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. Stephie Fried & David Lagakos, 2020. "Electricity and Firm Productivity: A General-Equilibrium Approach," NBER Working Papers 27081, National Bureau of Economic Research, Inc.
    10. 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.
    11. Tomoo Kikuchi & Kazuo Nishimura & John Stachurski & Junnan Zhang, 2019. "Coase Meets Bellman: Dynamic Programming and Production Chains," Papers 1908.10557, arXiv.org.

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