We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between highand low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of...

We provide an alternative theoretical foundation for a number of well known empirical regularities on industry dynamics and product life cycle. We consider a dynamic competitive industry with free entry and exit and time stationary demand where all firms are ex ante identical, have perfect foresight and where there is no uncertainty or information problem. We show that when firms invest in dete...

Suppose firms are subject to decreasing returns and permanent idiosyncratic productivity shocks. Suppose also firms can only stay in business by continuously paying a fixed cost. New firms can enter. Firms with a history of relatively good productivity shocks tend to survive and others are forced to exit. This paper identifies assumptions about entry that guarantee a stationary firm size distri...

This paper studies the identification of best response functions in binary games without making strong parametric assumptions about the payoffs. The best response function gives the utility maximizing response to a decision of the other players. This is analogous to the response function in the treatment-response literature, taking the decision of the other players as the treatment, except that...

We study a political economy model of entry barriers. Each period the policymaker determines whether to impose a high barrier to entry, and the special interest groups try to influence the policymaker’s decision. Entry is accompanied by creative destruction—when many new firms enter, old firms are more likely to be driven out of the market. Therefore the current incumbents (industry leaders) te...

We empirically study how the interplay between entry and subcontracting choices is affected by the use of different auctions formats in public procurement. The differencein-differences strategy used exploits a dataset of auctions for public works run alternately under first price and average bid auctions. We find that the use of first price auctions causes a marked decline in both entry and sub...