Productivity dispersion, competition and productivity measurement

Martin, Ralf (2008) Productivity dispersion, competition and productivity measurement. CEPDP (692). London School of Economics and Political Science. Centre for Economic Performance, London, UK. ISBN 0753018721

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Abstract

A startling fact of firm level productivity analysis is the large and persistent differences in both labour productivity and total factor productivity (TFP) between firms in narrowly defined sectoral classes. The competitiveness of an industry is potentially an important factor explaining this productivity dispersion. The degree of competition has also implications for the measurement of TFP at the firm level. This paper firstly develops a novel control function approach to production function and TFP estimation explicitly taking imperfect competition into account. This addresses a number of issues with the control function approach to productivity estimation. Secondly, applying this new approach to UK data it shows that productivity dispersion on average is about 50 percent higher than with standard TFP measures. It also shows that accounting for imperfect competition matters for estimates of the persistence of TFP. Thirdly, the paper finds a negative relationship between competition and productivity dispersion.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 2008 Ralf Martin
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HD Industries. Land use. Labor
JEL classification:	L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology; Computer Programs > C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data
Date Deposited:	17 Jul 2008 10:50
Last Modified:	15 Sep 2023 23:11
URI:	http://eprints.lse.ac.uk/id/eprint/19573

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