This paper evaluates the size of these effects when distortions affect not only resource allocation but also the evolution of firm level productivity itself. To this end, we partially endogenize the evolution of firm level productivity in a standard heterogeneous firm model by allowing firms to...

Recent empirical research has documented the importance of shocks to firm- specific productivity, but has provided only limited evidence on their sources. This paper proposes and analyzes purposeful experimentation by firms as a source of such shocks and models industry dynamics in such a...