Uncertainty, misallocation and the life-cycle growth of firms

Arbeitspapier

We develop a measure of static misallocation that separates uncertainty from misallocation generated by tax-like distortions. In the Finnish firm-level data, uncertainty accounts for the majority of ex post misallocation and explains a strong decreasing age-dependent trend in it. To understand these observations, we set up a life-cycle model of firm growth where new firms have to learn their productivity. We match our model with the salient features of the data and show that our model implies idiosyncratic distortions, in line with our accounting approach. According to our quantitative results, uncertainty suppresses output by 38%, while misallocation has a 26% negative effect on output.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion paper ; No. 146

Classification and Topics

• Classification: Wirtschaft ; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity ; Macroeconomics: Production ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
• Subject: firm dynamics ; uncertainty ; misallocation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mäkynen, Eero ; Vähämaa, Oskari
• Event: Veröffentlichung
• (who): Aboa Centre for Economics (ACE)
• (where): Turku
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/265184
• Last update: 10.03.2025, 11:41 AM CET