We develop a theory linking “misallocation,” i.e., dispersion in static marginal products of capital (MPK), to … heterogeneity in firm-level risk premia and, more importantly, MPK. The theory predicts that cross-sectional dispersion in MPK (i … inefficient, lowers the average level of aggregate TFP by as much as 7%, suggesting large “productivity costs” of business cycles …

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 …