We present a heterogeneous-firm model in which management ability increases both pro- duction efficiency and product quality. Combining six micro-datasets on management prac- tices, production and trade in Chinese and American firms, we find broad support for the model's predictions. First,...

In selection markets, where the cost of serving consumers is heterogeneous and noncontractible, non-price product features allow a firm to sort profitable from unprofitable consumers. An example of this “sorting by quality” is the use of downpayments to dissuade borrowers unlikely to repay....