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Misallocation in the Market for Inputs

Author

Listed:
  • Ezra Oberfield

    (Princeton University)

Abstract
This paper studies an environment in which the network structure of production - who buys inputs from whom - is determined endogenously and is the key determinant of aggregate productivity. I address two questions: How do contracting frictions shape the equilibrium network structure? And conversely, how does an economy's network structure shape the impact of contracting frictions? In this environment, a more severe contracting friction may cause producers to favor and direct search effort toward the "wrong" suppliers, leading them to use lower-productivity techniques or higher-cost inputs. The impact of a marginal reduction in contracting frictions depends on the length of supply chains. When supply chains are longer, and wedge between buyer-supplier pairs is magnified. In turn, the length of supply chains in equilibrium depends on the the severity of contracting frictions. For some parameter values, network externalities and thick-market effects amplify the impact on aggregate productivity.

Suggested Citation

  • Ezra Oberfield, 2014. "Misallocation in the Market for Inputs," 2014 Meeting Papers 1226, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:1226
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    Citations

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    Cited by:

    1. Andrew B. Bernard & Emmanuel Dhyne & Glenn Magerman & Kalina Manova & Andreas Moxnes, 2022. "The Origins of Firm Heterogeneity: A Production Network Approach," Journal of Political Economy, University of Chicago Press, vol. 130(7), pages 1765-1804.
    2. Matthew Elliott & Benjamin Golub & Matthew V. Leduc, 2022. "Supply Network Formation and Fragility," American Economic Review, American Economic Association, vol. 112(8), pages 2701-2747, August.
    3. Gadenne, Lucie & Nandi, Tushar K. & Rathelot, Roland, 2019. "Taxation and Supplier Networks : Evidence from India," The Warwick Economics Research Paper Series (TWERPS) 1208, University of Warwick, Department of Economics.
    4. Matray, Adrien, 2020. "Misallocation and Capital Market Integration: Evidence From India," CEPR Discussion Papers 14282, C.E.P.R. Discussion Papers.
    5. repec:spo:wpmain:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    6. Clement Imbert & Marlon Seror & Yifan Zhang & Yanos Zylberberg, 2022. "Migrants and Firms: Evidence from China," American Economic Review, American Economic Association, vol. 112(6), pages 1885-1914, June.
    7. repec:spo:wpecon:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    8. Stephie Fried & David Lagakos, 2023. "Electricity and Firm Productivity: A General-Equilibrium Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(4), pages 67-103, October.
    9. Kikuchi, Tomoo & Nishimura, Kazuo & Stachurski, John & Zhang, Junnan, 2021. "Coase meets Bellman: Dynamic programming for production networks," Journal of Economic Theory, Elsevier, vol. 196(C).
    10. Patrick Alexander, 2021. "Vertical specialisation and gains from trade," The World Economy, Wiley Blackwell, vol. 44(4), pages 1110-1140, April.
    11. repec:hal:wpspec:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    12. repec:hal:spmain:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    13. Michael Alexeev & Andrey Chernyavskiy, 2019. "The impact of institutional quality on manufacturing sectors in Russia: panel data analysis," CAEPR Working Papers 2019-004, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.

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