Seminario "Scalable Expertise"

21/10, 17h

Presentado por David Argente

Paper Abstract 

We document that aggregate or sectoral demand shocks have disproportionately bigger effects on larger firms. Changes in scope, the number of products/locations, plays a significant role in this heterogeneity. Motivated by these facts, we present a theory of firm size, where both scope and expertise (which determines revenues and profits) are chosen endogenously. The extent to which expertise is scalable (applicable to multiple products), as opposed to local (specific to a particular product), is also chosen by the firm. The model predicts rich heterogeneity in responses to a sector-wide demand shock: firms with higher revenue per product (conditional on scope) adjust their scope by less, while those with higher scope (conditional on revenue per product) adjust by more. Using data on multi-product and multi-establishment firms, we provide empirical evidence in support of these predictions. We also construct a proxy for the scalability of the firm’s expertise and show that the predictions of the model with respect to the scalability of firm-level expertise, both in the cross-section and in response to shocks, are also consistent with the patterns observed in the data.

Jointly written with Sara Moreira, Ezra Oberfield, and Venky Venkateswaran

David Argente
Ph.D in Economics from the University of Chicago. Assistant Professor at the Penn State University Department of Economics. His research areas are macroeconomics, monetary economics, firm dynamics and economic growth. 

Zoom Meeting

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