Coordination failures and endogenous productivity : a general equilibrium approach

Abstract

Several papers have shown that the misallocation of resources among heterogeneous firms can have damaging consequences for countries’ total factor productivity. The present work studies the impact of these distortions when they affect not only the present productivity, but also the dynamics of future productivity, in an environment where the decisions of the agents can generate coordination failures. This analysis will be carried out from a standard model of heterogeneous firms, with partially endogenous productivity. In this model, firms have the ability to affect their future productivity by means of risky experiments, which take the form of productivity shocks, and coordination failures are generated from a complementarity of demand.