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Products and productivity

Bernard, Andrew B., Redding, Stephen and Schott, Peter K. (2005) Products and productivity. 699. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Firms' decisions about which goods to produce are often made at a more disaggregate level than the data observed by empirical researchers. When products differ according to production technique or the way in which they enter demand, this data aggregation problem introduces a bias into standard measures of firm productivity. We develop a theoretical model of heterogeneous firms endogenously self-selecting into heterogeneous products. We characterize the bias introduced by unobserved variation in product mix across firms, and the implications of this bias for identifying firm and industry responses to exogenous policy shocks such as deregulation. More generally, we demonstrate that product switching gives rise to a richer set of industry-level dynamics than models where firm product mix remains fixed.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2005 A. B. Bernard, S. Redding and P. K. Schott
Library of Congress subject classification: H Social Sciences > HF Commerce
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Identification Number: 699
Date Deposited: 03 Mar 2008

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