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David Rezza BAQAEE (LSE) “Productivity and Missalocation in General Equilibrium”

November 12, 2018, 12:15 pm - 1:30 pm

Time: 12:15pm – 13:30 pm
Date: 12th of November 2018
Place: Room 3001

David Rezza BAQAEE (LSE) “Productivity and Missalocation in General Equilibrium”

Abstract : We provide a general non-parametric formula for aggregating microeconomic shocks in general equilibrium economies with distortions such as taxes, markups, frictions to resource reallocation, and nominal rigidities. We show that the macroeconomic impact of a shock can be boiled down into two components: its “pure” technology e_ect; and its e_ect on allocative e_ciency arising from the reallocation of resources, which can be measured via changes in factor income shares. We derive a formula showing how these two components are determined by structural microeconomic parameters such as elasticities of substitution, returns to scale, factor mobility, and network linkages. Overall, our results generalize those of Solow (1957) and Hulten (1978) to economies with distortions. As examples, we pursue some applications focusing on markup distortions. We operationalize our non-parametric results and show that improvements in allocative e_ciency account for about 50% of measured TFP growth over the period 1997-2015. We implement our structural results and conclude that eliminating markups would raise TFP by about 20%, increasing the economywide cost of monopoly distortions by two orders of magnitude compared to the famous 0.1% estimate by Harberger (1954).

Joint work : Emmanuel FARHI (Harvard)


November 12, 2018
12:15 pm - 1:30 pm
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Edouard CHALLE
Julien PRAT