Entrepreneurship and misallocation in production network economies


Type
Article
Change log
Authors
Mendes, A 
Pannella, P 
Abstract

jats:titleAbstract</jats:title>jats:pThis paper investigates how sectoral linkages amplify or diminish misallocation at the intensive and extensive margins. Our analysis is based on a multisector general equilibrium model with input–output linkages, heterogeneous entrepreneurial abilities, and endogenous occupational choice. Distortions affect the intensive use of production inputs and they also impact the agents’ occupational decisions, misallocating the mass and type of entrepreneurs in different sectors of production. When the most distorted sectors are upstream (downstream), input–output linkages amplify (diminish) the loss from entreprenurial misallocation. We calibrate the model to the US and quantify the output losses from sectoral corporate taxes, decomposing the role of networks and the extensive margin decisions. We find that sectoral linkages quadruple the loss from the misallocation of entrepreneurs. We study an entry subsidy program, showing that it should target those sectors whose jats:italicmarginal</jats:italic> entrepreneurs suffer larger profit losses, even if they are not necessarily the most distorted.</jats:p>

Description
Keywords
38 Economics, 35 Commerce, Management, Tourism and Services, 3507 Strategy, Management and Organisational Behaviour
Journal Title
Economic Theory
Conference Name
Journal ISSN
0938-2259
1432-0479
Volume Title
Publisher
Springer Science and Business Media LLC