Identifying Productivity When It Is a Choice
46 Pages Posted: 13 Nov 2017 Last revised: 28 Feb 2019
Date Written: February 26, 2019
Productivity is typically modeled as an exogenous plant characteristic, but the people who run the plant make choices that affect how productive it is. Instruments that are uncorrelated with productivity but correlated with input use are therefore rare because when plants want to adjust one factor of production, input use, they also want to adjust other factors of production, like productivity. This article develops a method to partially identify statistics of the productivity distribution based on a monotone comparative static result without assuming productivity is exogenous or requiring an instrumental variable. I use the method to study the productivity effect of restructuring in the electricity generation industry.
Keywords: Productivity, Partial Identification, Technology Choice, Identification of Production Functions, Power Plants, Restructuring
JEL Classification: D24, L11, L94
Suggested Citation: Suggested Citation