Selection on Productivity or Profitability?

Na sequência do postal "A inovação que interessa para a produtividade que precisamos" cheguei a este artigo "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?" de Lucia Foster, John Haltiwanger e Chad Syverson, publicado na American Economic Review 2008, 98:1, 394–425.
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"Models of such selection mechanisms characterize industries as collections of heterogeneousproductivity producers and link producers’ productivity levels to their performance and survival in the industry. (Moi ici: Ou seja, a abordagem que não costuma ser seguida pelos macro-economistas que tratam tudo por igual dentro de um mesmo sector de actividade económica)
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(Moi ici: Ao ler o trecho que se segue desconfiei do que aí vinha... o que será que os autores querem dizer quando falam em eficiência?) The important mechanism driving aggregate productivity movements in these models is the reallocation of market shares to more efficient producers, either through market share shifts among incumbents or through entry and exit. Low productivity plants are less likely to survive and thrive than their more efficient counterparts, creating selection-driven aggregate (industry) productivity increases. Hence the theories point to the productivity-survival link as a crucial driver of productivity growth. (Moi ici: Não! Calma, uma segunda leitura permite perceber que eles referem-se ao modelo mental subjacente aos "these models" para explicar os resultados)
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Businesses’ measured productivity levels are persistent and vary significantly within industries, suggesting that productivity “types” among producers have an inherent idiosyncratic element. Reallocation, entry, and exit rates are large. Businesses with higher measured productivity levels tend to grow faster and are more likely to survive than their less productive industry cohorts. These signs all point to a selection mechanism at work. In reality, however, the productivity-survival link is a simplification. Selection is on profitability, not productivity (though the two are likely correlated). Productivity is only one of several possible idiosyncratic factors that determine profits, however.
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within-industry price differences are embodied in output and productivity measures. If prices reflect idiosyncratic demand shifts or market power variation rather than quality or production efficiency differences, a reasonable supposition for many industries, then high “productivity” businesses may not be particularly technologically efficient. (Moi ici: Duh! Claro que isto é verdade mas tão difícil de perceber pelos teóricos... têm medo das idiossincrasias como o diabo da cruz, não é fácil matematizar idiossincrasias. Ainda ontem, ao folhear este livro "Inside the Mind of the Shopper The Science of Retailing" de  Herb Sorensen foi fácil perceber o poder das idiossincrasias) If this is the case, the empirical literature documents the importance of selection on profits, but not necessarily productivity. Therefore the connection between productivity and survival probability, reallocation, and industry dynamics may be overstated, and the impact of demand-side influences on survival understated. (Moi ici: Não falamos de outra coisa aqui no blogue, em vez de combater a batalha da eficiência, combater a batalha da eficácia deslocando a curva da procura para a direita o mais possível)
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(Moi ici: Os autores fazem um estudo com base em produtos homogéneos, apesar da limitação desta escolha... que leva à situação que eu tento combater nas empresas, é interessante perceber a que conclusões se chegam) The specific products that we investigate are corrugated and solid fiber boxes (henceforth referred to as boxes), white pan bread (bread), carbon black, roasted coffee beans (coffee), readymixed concrete (concrete), oak flooring (flooring), motor gasoline (gasoline), block ice, processed ice, hardwood plywood (plywood), and raw cane sugar (sugar). Producers of these products make outputs that are among the most physically homogeneous in the manufacturing sector. In addition to product homogeneity, the set of producers is large enough to exhibit sufficiently rich within-industry reallocation and turnover.
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We can therefore directly compare revenue-based productivity measures with measures of physical efficiency, and show precisely the impacts of each on selection dynamics and industry evolution. We can further use our business-level price observations to estimate the influence of idiosyncratic demand elements on survival.
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To preview our findings, we note that the large and persistent within-industry dispersion observed in revenue-based productivity measures is also present in prices and physical-quantity-based productivity measures. Interestingly, physical productivity is actually more dispersed than revenue-based productivity even though the former is a component of the latter.
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Our physical productivity measures provide a unique and powerful instrument for price to overcome the typical simultaneity bias in demand estimation. The demand estimates allow us to decompose plant-level price variation into two components, one reflecting movements along the demand curve due to differences in physical efficiency, the other reflecting producers’ idiosyncratic demand shift.With regard to industry evolution, we find that exiting businesses have lower productivity levels—either revenue based or physical quantity based—than incumbents, though the gap is larger in magnitude for revenue productivity. (Moi ici: Ou seja, a estimulogia apenas atrasa o inevitável, impede o aumento da produtividade agregada, a médio-prazo derrete procura através da cobrança futura de impostos para pagar o endividamento em que assentaram os estímulos e ainda torna mais difícil a entrada de novos players que viriam aumentar a produtividade) Entering businesses, on the other hand, have higher physical productivity levels than incumbents, but their revenue-based productivity advantage is much less pronounced and sometimes nonexistent. (Moi ici: Interessante... talvez explique os resultados de Maliranta sobre a produtividade dos novos players face aos incumbentes...) Similar patterns are seen when we compare young businesses to their more mature competitors. For all of these findings, the key source of discrepancies between the estimated effects of revenue and physical productivity is that young businesses charge lower prices than incumbents. This also suggests that the current literature understates the contribution of entry to aggregate productivity growth.
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We bring these pieces together to explore the determinants of market selection. As in the existing literature, we find that plants with lower revenue productivity are more likely to exit. When we decompose revenue productivity into physical productivity and prices, though, we find that both independently affect survival and the magnitudes of their individual effects are larger than their combined effect through revenue productivity measures. That is, while low prices and low physical productivity are both associated with higher probabilities of exit in isolation, the marginal effect of each is substantially enhanced by controlling for the other. When we further decompose prices into technology and demand fundamentals, our analysis shows that producers facing lower demand shocks are more likely to exit. In fact, our estimates suggest that demand variations across producers are the dominant factor in determining survival.
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(Moi ici: Nas conclusões) We find that the producer heterogeneity assumed in the model is present in the data. Productivity (both revenue- and physical-quantity-based measures) and prices exhibit substantial and persistent dispersion across establishments within narrowly defined product classes. Interestingly, quantity-based productivity measures exhibit greater dispersion than revenue-based measures.
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The demand estimates decompose plant-level price variation into two components, one reflecting movements along the demand curve due to differences in physical efficiency, and the other reflecting producers’ idiosyncratic demand levels. Turning to selection more directly, we find exiting businesses have lower prices and lower productivity (either revenue based or physical quantity based) than incumbents or entrants. Consistent with the earlier literature, we also find that there is, at best, weak evidence of a productivity advantage of entrants, relative to incumbents, when revenue-based productivity measures are used. However, we show that this results, in part, because entering businesses also have lower prices than incumbents. Therefore revenue-based measures understate entrants’ productivity advantages. Indeed, we show that entrants are more physically productive than incumbents. This productivity understatement is also seen not just for entrants, but for young businesses in general, relative to mature incumbents, because young businesses charge lower prices than their older competitors. Plants with lower productivity levels (revenue- or quantity-based), lower prices, and lower idiosyncratic demand are more likely to exit. Decomposing and controlling for both price and productivity effects simultaneously shows that both factors are important for survival.
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While physical productivity is an important factor in determining survival, the dominant factor determining survival is demand variation across producers."