Endogenous productivity and unobserved prices
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Date
2018-01-29
DOI
Authors
Guillard, Charlotte
Jaumandreu, Jordi
Olivari, Jocelyn
Version
First author draft
OA Version
Citation
Charlotte Guillard, Jordi Jaumandreu, Jocelyn Olivari. "Endogenous Productivity and Unobserved Prices."
Abstract
We discuss ways to apply the model for endogenous productivity when there are no firm-level
output price indices available, a limitation of many data bases. Including the demand of the
firm in the estimation allows us to obtain a "composite" of productivity, demand elasticity, and
demand heterogeneity. This unobservable, often called "revenue productivity", is the estimate
of productivity used by most scholarly studies. We find that this composite does not behave as
productivity and, in particular, neither is greater for firms that perform R&D nor its distribution
shows stochastic dominance. Its persistence and returns also give different results. Our findings
highlight that results based on revenue productivity can be highly misleading about the returns
of firm investments.