Allocating Misallocation: Decomposing Measures of Aggregate Allocative Efficiency
April 2026
Working Paper Number:
CES-26-26
Abstract
We explore sources of measured misallocation using establishment data from U.S. manufacturing industries. We decompose standard revenue productivity dispersion statistics into contributions by dispersion in revenue margins over costs and dispersion in input cost shares across plants. We establish a formal link between these components and measured allocative efficiency. The results indicate the components contribute similarly to apparent rising misallocation in US manufacturing. We use the mapping between distortions that influence these distinct components to explore the relationship between inferred distortions and mechanisms that influence one or both sources of revenue productivity dispersion. Finally, we show rising misallocation in the US manufacturing sector in the last several decades is pervasive, and yet a few industries account for over half of the aggregate decline.
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:
investment,
quantity,
production,
macroeconomic,
manufacturing,
growth,
corporation,
efficiency,
sector,
incorporated,
expenditure,
revenue,
productivity dispersion,
productivity variation,
deviation,
productivity distribution
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Annual Survey of Manufactures,
Total Factor Productivity,
Cobb-Douglas,
Longitudinal Business Database,
North American Industry Classification System,
TFPR,
TFPQ,
Census Bureau Disclosure Review Board
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