Patent Thickets, Stock Returns, and Conditional CAPM

Patent thickets, a phenomenon of fragmented ownership of overlapping patent rights, hamper firms’ commercialization of patents and thus deliver asset pricing implications. We show that firms with deeper patent thickets are involved in more patent litigations, launch fewer new products, and become less profitable in the future. These firms are also associated with lower subsequent stock returns, which can be explained by a conditional Capital Asset Pricing Model (CAPM) based on a general equilibrium model that features heterogeneous market betas conditional on time-varying aggregate productivity. This explanation is supported by further evidence from factor regressions and stochastic discount factor tests. This paper was accepted by Karl Diether, finance.

Returns to Scale, Productivity Measurement, and Trends in U.S. Manufacturing Misallocation

Aggregate productivity suffers when workers and machines are not matched with their most productive uses. This paper builds a model that features industry-specific markups, industry-specific returns to scale, and establishment-specific distortions, and uses it to measure the extent of this misallocation in the economy. Applying the model to restricted U.S. Census microdata on the manufacturing sector suggests that misallocation declined by 13% between 1982 and 2007. The finding of declining misallocation starkly contrasts with the 29% increase implied by the widely used assumptions that all establishments charge the same markup and have constant returns to scale.

Micro-Level Misallocation and Selection

How large are the aggregate productivity losses from the misallocation of resources across firms? With endogenous selection, microfrictions can induce extensive margin misallocation among firms: too many unproductive firms are active (Zombies), and too many productive firms are inactive (Shadows). Therefore, the same set of measured distortions potentially induces much larger aggregate productivity losses, as the composition of firms is shifted toward unproductive active firms. I develop and calibrate a model with plant-level microdata for Indonesia to quantify aggregate welfare in the presence of extensive margin misallocation. My estimates show that selection can magnify aggregate TFP losses from microdistortions by over 40 percent compared to existing estimates. Realistic values of measurement error even increase the relative importance of extensive margin misallocation. (JEL D22, D24, E23, J24, J31, O14, O15)

Productivity growth and sectoral interactions under Domar aggregation: a study for the Brazilian economy from 2000 to 2014

In this paper, we use the Domar aggregation approach to study the evolution of Brazil’s productivity growth from 2000 to 2014, thus allowing us a disaggregated assessment of the issue. We found that the Brazilian economy’s overall performance is the outcome of a decrease in the economy’s density, as defined by the existing backward and forward connections amongst industries in intermediate inputs chains. It also can be explained by the poor performance of its sectors. Despite the relatively high density of the manufacturing sector, it performed a negative role concerning aggregate productivity growth both directly and indirectly. Directly insofar as that sector had negatives productivity growths during the period under consideration, and indirectly due to its high interconnection, which spread negative rather than positive productivity gains across the economy. Therefore, to improve the Brazilian economy’s poor performance, it is mandatory to restore the manufacturing sector’s capability to yield and spread productivity gains.