Do Productivity Shocks Cause Inputs Misallocation?

Abstract: Firms exhibit varying productivity levels even within narrowly defined industries and face uncertainty when predicting future performance. This paper investigates the link between productivity uncertainty, heterogeneity, and misallocation across all inputs. Using a model where heterogeneous firms face staggered productivity shocks, creating gaps between expected and actual productivity, I find a positive association between marginal revenue product dispersions and productivity variability. The analysis reveals that productivity shocks predominantly drive marginal revenue product dispersions. By comparing baseline estimates with those from the factor shares approach, I highlight the limitations of the latter method in analyzing the effects of productivity evolution.