Products and Productivity

37 Pages Posted: 30 Jul 2009

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 1, 2008

Abstract

When firms make decisions about which product to manufacture at a more disaggregated level than observed in the data, measured firm productivity will reflect both true differences in productivity and non-random decisions about which products to manufacture. This paper examines a model of industry equilibrium where firms endogenously sort across products. We use the model to characterize the direction and magnitude of the resulting bias in productivity and to trace the implications for evaluating the aggregate effects of policy reforms such as industry deregulation. The endogenous sorting of firms across products provides a new source of reallocation and leads to biased measures of deregulation’s impact on firm and aggregate productivity.

Keywords: Product choice, Productivity measurement, Firm heterogeneity, Industry

JEL Classification: L11, D21, L60

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K., Products and Productivity (August 1, 2008). US Census Bureau Center for Economic Studies Paper No. CES-WP- 08-22, Available at SSRN: https://ssrn.com/abstract=1440912 or http://dx.doi.org/10.2139/ssrn.1440912

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

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HOME PAGE: http://mba.tuck.dartmouth.edu/pages/faculty/Andrew.Bernard/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

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Stephen J. Redding

Princeton University ( email )

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HOME PAGE: http://www.princeton.edu/~reddings/

Peter K. Schott

Yale University - School of Management ( email )

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203-436-6974 (Fax)

HOME PAGE: http://www.som.yale.edu/faculty/pks4

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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