We develop a theory linking "misallocation," i.e., dispersion in marginal products of capital (MPK), to macroeconomic … productivity by as much as 6%, suggesting large "productivity costs" of business cycles. …

's (1982) model of learning in a setting where each firm gradually learns about its own productivity, and each occasionally …

allocation of risky projects within the banking sector. Moreover, we show that mandatory deferral of compensation is weakly …

find that the degree of measured misallocation is increasing in the persistence of the idiosyncratic productivity shocks …. Under the optimal contract, the possibility to transfer wealth from high productivity states to low productivity states … allows firm owners to trade off efficient allocation of consumption against the efficient allocation of capital. We show that …

firms have to learn their productivity. We match our model with the salient features of the data and show that our model …