Identifying Productivity When It Is a Factor of Production

Abstract

Economists typically model a plant's productivity as an exogenous characteristic, but the people who run and work at manufacturing plants make choices, at a cost, that affect plant productivity. I develop a method to partially identify the productivity distribution when such choices determine productivity. The method uses a monotone comparative static result I prove in a general economic model. It does not require instruments or timing assumptions. I use the method to study the effect of implementing market-based pricing on productivity in the electricity generation industry.

Keywords: Productivity, Partial Identification, Technology Choice, Identification of Production Functions, Power Plants, Restructuring

JEL Classification: D24, L11, L94