Products and Productivity

45 Pages Posted: 17 Oct 2005 Last revised: 19 Aug 2022

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stephen J. Redding

Princeton University

Peter K. Schott

Yale University - School of Management; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Multiple version iconThere are 3 versions of this paper

Date Written: August 2005

Abstract

Firms' decisions about which goods to produce are often made at a more disaggregate level than the data observed by empirical researchers. When products differ according to production technique or the way in which they enter demand, this data aggregation problem introduces a bias into standard measures of firm productivity. We develop a theoretical model of heterogeneous firms endogenously self-selecting into heterogeneous products. We characterize the bias introduced by unobserved variation in product mix across firms, and the implications of this bias for identifying firm and industry responses to exogenous policy shocks such as deregulation. More generally, we demonstrate that product switching gives rise to a richer set of industry-level dynamics than models where firm product mix remains fixed.

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K., Products and Productivity (August 2005). NBER Working Paper No. w11575, Available at SSRN: https://ssrn.com/abstract=788440

Andrew B. Bernard (Contact Author)

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Stephen J. Redding

Princeton University ( email )

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Peter K. Schott

Yale University - School of Management ( email )

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