The Review of Economics and Statistics 2025
Firm Life-Cycle Learning and Misallocation
Abstract
Dispersion in marginal revenue products of capital (MRPK) across firms may lower aggregate productivity through misallocation. Using firm-level panel data from China, I document that MRPK dispersion decreases substantially with firm age, particularly before age five. Building on this novel fact, I propose a new interpretation of MRPK dispersion as resulting from firm life-cycle learning. To formalize this idea, I develop a quantitative model in which firms learn about their fundamental productivity as they age in a frictional market with endogenous exits. I find that omitting learning can result in considerable overestimation of TFP losses from "distortions" .
- DOI
- 10.1162/rest.a.1678
- Pages
- 1-49
- Language
- en
- Sources
- openalex crossref