Natural Disasters and Markups

Abstract

Using administrative data, we show that natural disasters in Italy lead to a persistent decline in markups of affected manufacturing firms, particularly large ones. These patterns can be rationalized using a simple oligopolistic competition model with firm-specific shocks. We then quantify how markup adjustments shape aggregate productivity and welfare. Our findings suggest that markup adjustments may have mitigated the impact of the 2012 Italian earthquake on aggregate productivity by approximately 30%.

Keywords: Natural Disasters, Markups, Oligopolistic Competition, Granularity, Misallocation, Firm Heterogeneity