A Sufficient Statistics Approach for Aggregating Firm-Level Experiments

We consider a dynamic economy populated by heterogeneous firms subject to generic capital frictions: adjustment costs, taxes and financing constraints. A random subset of firms in this economy receives an empirical "treatment", which modifies the parameters governing these frictions. An ec...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Sraer, David, Thesmar, David
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2018
Subjects
Economic models
Online AccessGet full text

Cover

More Information
Summary:We consider a dynamic economy populated by heterogeneous firms subject to generic capital frictions: adjustment costs, taxes and financing constraints. A random subset of firms in this economy receives an empirical "treatment", which modifies the parameters governing these frictions. An econometrician observes the firm-level response to this treatment, and wishes to calculate how macroeconomic outcomes would change if all firms in the economy were treated. Our paper proposes a simple methodology to estimate this aggregate counterfactual using firm-level evidence only. Our approach takes general equilibrium effects into account, requires neither a structural estimation nor a precise knowledge on the exact nature of the experiment and can be implemented using simple moments of the distribution of revenue-to-capital ratios. We provide a set of sufficient conditions under which these formulas are valid and investigate the robustness of our approach to multiple variations in the aggregation framework.