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Grouped Variation in Factor Shares: An Application to Misallocation

August 2022

Working Paper Number:

CES-22-33

Abstract

A striking feature of micro-level plant data is the presence of significant variation in factor cost shares across plants within an industry. We develop a methodology to decompose cost shares into idiosyncratic and group-specific components. In particular, we carry out a cluster analysis to recover the number and membership of groups using breaks in the dispersion of factor cost shares across plants. We apply our methodology to Chilean plant-level data and find that group-specific variation accounts for approximately one-third of the variation in factor shares across firms. We also study the implications ofthese groups in cost shares on the gains from eliminating misallocation. We place bounds on their importance and find that ignoring them can overstate the gains from eliminating misallocation by up to one-third.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the text, highlighting the most significant topics and trends. This approach not only enhances searchability but provides connections that go beyond potentially domain-specific author-defined keywords.
:
production, manufacturing, cost, manufacturer, sector, cluster, factory, depreciation, profit, share

Tags Tags are automatically generated using a pretrained language model from spaCy, which excels at several tasks, including entity tagging.

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:
Standard Statistical Establishment List, Center for Economic Studies, Total Factor Productivity, Cobb-Douglas, International Standard Industrial Classification

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