Ezra Oberfield, Princeton University: Misallocation in the Market for Inputs: Enforcement and the Organization of Production
Department seminar. Ezra Oberfield is an Assitant Professor of Economics at Princeton University. He will present a paper entitled "Misallocation in the Market for Inputs: Enforcement and the Organization of Production", co-authored by Johannes Boehm.
How costly is weak contract enforcement? Using microdata on Indian manufacturing plants, we show that in states with weaker enforcement, as measured by judicial lags, production and sourcing decisions appear systematically distorted. We document that among plants in industries that tend to rely more heavily on inputs that require customization, those in states with more congested courts shift their expenditures away from intermediate inputs, whereas we find the opposite in industries that tend to rely on standardized inputs. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use.
Host: Yikai Wang