American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Entry and Exit, Multiproduct Firms, and Allocative Distortions
American Economic Journal: Macroeconomics
(pp. 86–112)
Abstract
Most studies quantifying the gains from reversing allocative distortions are static in nature. We propose a model of firm dynamics featuring entry, exit, and multiproduct firms to understand the contribution of these dynamic factors in shaping the welfare and long-run productivity gains from removing distortions. We find that while the entry and exit of firms and their product-portfolio choices exert countervailing forces over long-run total factor productivity (TFP), they reinforce each other in shaping the welfare gains from reversing misallocation. Welfare gains, which account for transition dynamics, become more than twice as high as the long-run changes in TFP.Citation
Fattal Jaef, Roberto N. 2018. "Entry and Exit, Multiproduct Firms, and Allocative Distortions." American Economic Journal: Macroeconomics 10 (2): 86–112. DOI: 10.1257/mac.20140075Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D61 Allocative Efficiency; Cost-Benefit Analysis
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- O41 One, Two, and Multisector Growth Models