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Entrepreneurship and misallocation in production network economies

Published version
Peer-reviewed

Repository DOI


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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>

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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

78

Publisher

Springer Science and Business Media LLC