Working Papers

Misallocation of inputs across firms has been proposed as a reason for low levels of development in some countries. However, existing work has largely relied on strong assumptions about production functions in order to estimate the cost of misallocation. We show that, for arbitrary production functions, the cost of misallocation can be expressed as a function of the variance of marginal products. Using an RCT that gave grants to microenterprises, we estimate heterogeneous returns to capital by baseline characteristics, and provide a lower bound on the total variance of returns to capital. This lower bound is a nonlinear function of the parameters from a linear IV model, and we show that standard methods (e.g. the delta method or projection) fail in this setting. We provide novel econometric tools that provide uniformly valid confidence intervals for nonlinear functions of parameters. We find evidence for sizable losses from misallocation of inputs across the firms we study, although the magnitude depends critically on which inputs we allow to be reallocated. We estimate that optimally reallocating capital would increase output by 22%, while optimally reallocating all inputs would increase output by 301%.

This paper considers estimation of a directed network model in which outcomes are driven by dyad-specific variables (such as measures of homophily) as well as unobserved agent-specific parameters that capture degree heterogeneity. I develop a jackknife bias correction to deal with the incidental parameters problem that arises from fixed effect estimation of the model. In contrast to previous proposals, the jackknife approach is easily adaptable to different models and allows for non-binary outcome variables. Additionally, since the jackknife estimates all parameters in the model, including fixed effects, it allows researchers to construct estimates of average effects and counterfactual outcomes. I also show how the jackknife can be used to bias-correct fixed effect averages over functions that depend on multiple nodes, e.g. triads or tetrads in the network. As an example, I implement specification tests for dependence across dyads, such as reciprocity or transitivity. Finally, I demonstrate the usefulness of the estimator in an application to a gravity model for import/export relationships across countries.

Work in Progress