The Size and Life-Cycle Growth of Plants: The Role of Productivity, Demand and Wedges

Abstract

We develop a framework that uses price and quantity information on both establishments' outputs and inputs to assess the roles, on establishment dynamics and welfare, of technical efficiency, input prices, demand/quality, idiosyncratic markups, and residual wedges. Our strategy nests previous approaches limited by data availability. In our application, demand/quality is found to dominate the cross sectional variability of sales and sales growth, while quality-adjusted input prices and residual wedges play dampening roles, especially at birth. Markups play only a modest role for cross-sectional variability of sales and sales growth but are important in explaining welfare losses from revenue productivity dispersion. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.