Working Paper: NBER ID: w9712
Authors: Jaap H. Abbring; Jeffrey R. Campbell
Abstract: We present a structural model of firm growth, learning, and survival and consider its identification and estimation. In the model, entrepreneurs have private and possibly error-ridden observations of persistent and transitory shocks to profit. We demonstrate that the model's parameters can be recovered from public observations of sales and survival, and we estimate them using monthly data from new bars in Texas. We find that entrepreneurs observe profit's persistent component without error. In this sense, their information is substantially superior to the public's.
Keywords: firm growth; learning; survival; structural model
JEL Codes: C34; C35; C41; D83; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| entrepreneurs' private information about profit shocks (D89) | better forecasting of future profits (G17) |
| better forecasting of future profits (G17) | continuation decisions (D70) |
| average sales between surviving firms and those that exit (L25) | reveal distribution of entrepreneurs' observations (D39) |
| entrepreneurs' private information (D82) | firm survival outcomes (L21) |