Essays on firm and aggregate productivity and efficiency
Hughes, Danny R.
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In the past decade, researchers have been increasingly examining productive efficiency as an explanation for observed economic phenomena. The aim of this research is to further this practice on two fronts. My first emphasis is on firm efficiency. While numerous empirical studies have investigated whether efficiency is behind firm growth and industry market structure, there is little theoretical justification for this practice. I develop an endogenous model of firm innovation that explicitly defines firm efficiency as the principal driver of firm growth and market structure. I then test some of its implications through a stochastic frontier analysis of manufacturing firms from the COMPUSTAT database. My second emphasis is on aggregate technology frontiers. I argue that economy-wide technology frontiers estimated with aggregate measures of output are downward biased. In response to this bias, I propose a micro-macro approach that estimates a “better” frontier that more closely emulates the underlying heterogeneous technologies.