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Firm Life-Cycle Learning and Misallocation

Ying Feng

National University of Singapore

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

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