Icarus and Daedalus: Non-Gaussian Size-Dependent Productivity and Aggregate Risk
With Ronit Mukherji
How does productivity evolve at the microeconomic level, and how does that evolution shape macroeconomic risk? Using input and output quantities, we measure physical productivity growth. Size shapes non-Gaussian distributions and nonlinear dynamics. Larger producers exhibit sharper peaks and thicker tails, recover more strongly from losses, and retain more gains. We estimate a microeconomically disciplined, size-dependent, regime-switching law of motion capturing these distributional and dynamic facts. Aggregation yields higher kurtosis and thicker standardized tails than a Gaussian, raising the probability of technological recessions six times. Size determines whose shocks matter; size-conditioned productivity dynamics determine the aggregate risks they carry.