2024/11/24 by Michèle Battisti, Battisti, Michele, Valentino Dardanoni +3
Economics, Econometrics and Finance · #FOS: Economics and business #Firm Innovation and Growth #General Economics (econ.GN)
paper · pdf · doi:10.48550/arxiv.2411.15980
openalex publication_date 2024/11/24 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper studies inter-firm heterogeneity in production. Unlike much of the existing research, which primarily addresses heterogeneous production through unobserved fixed effects, our approach also focuses on differences in factors' output elasticities. Using manufacturing data from Chile, Colombia, and Japan, we apply an innovative Empirical Bayes methodology to estimate heterogeneous Cobb-Douglas production functions. We uncover substantial heterogeneity in both factor neutral productivity and factor elasticities, with a strong negative correlation between them. These findings are consistently observed across datasets and remain robust when using CES and intensive Cobb-Douglas specifications. We show that accounting for these features has significant implications for issues such as markup estimation, firms' technology adoption, and productivity measurement.