Information, Misallocation and Aggregate Productivity / Joel M. David, Hugo A. Hopenhayn, Venky Venkateswaran.

Format:

Book

Author/Creator:

David, Joel M.

Contributor:

National Bureau of Economic Research.

Hopenhayn, Hugo A.

Venkateswaran, Venky.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20340.

NBER working paper series no. w20340

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms look to a variety of noisy information sources when making input decisions. We devise a novel empirical strategy that uses a combination of firm-level production and stock market data to pin down the information structure in the economy. Even when only capital is chosen under imperfect information, applying this methodology to data from the US, China, and India reveals substantial losses in productivity and output due to the informational friction. Our estimates for these losses range from 7-10% for productivity and 10-14% for output in China and India, and are smaller, though still significant, in the US. Losses are substantially higher when labor decisions are also made under imperfect information. We find that firms turn primarily to internal sources for information; learning from financial markets contributes little, even in the US.

Notes:

Print version record

July 2014.