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Inverse Ramsey Problem of the Resource Misallocation Effect on Aggregate Productivity

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Author Info
Aoki, Shuhei

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Abstract

This paper examines the extent to and the conditions under which resource misallocation negatively affects aggregate productivity in a model of heterogeneous firms to the highest degree. I analytically derive the minimum aggregate total factor productivity (TFP) under resource misallocation, when frictions are modeled as the taxes levied on a firm's output, and the range of these taxes is provided. I find that the lower limit of the minimum aggregate TFP is the TFP under perfect substitute goods and constant returns to scale technology. Further, with the exception of particular parameter values in which the misallocation effect on aggregate TFP is small, the minimum aggregate TFP is achieved when the proportion of firms in the lowest tax level is small or when the TFP level of these firms is low.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7930.

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Date of creation: 26 Mar 2008
Date of revision: 07 Oct 2008
Handle: RePEc:pra:mprapa:7930

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Related research
Keywords: distortions; firm heterogeneity; misallocation; productivity; Ramsey problem;

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  4. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March. [Downloadable!] (restricted)
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  7. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Working Papers tecipa-283, University of Toronto, Department of Economics. [Downloadable!]
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  8. Fumio Hayashi & Edward C. Prescott, 2006. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," NBER Working Papers 12081, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," NBER Working Papers 13290, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Charles I. Jones, 2008. "Intermediate Goods, Weak Links, and Superstars: A Theory of Economic Development," NBER Working Papers 13834, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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