State-contingent analysis of productivity, efficiency and innovation (2008–2010)
A major problem in productivity analysis is the need to distinguish outcomes that reflect genuine changes in productive performance from those that reflect stochastic shocks, such as interruptions to production or short-term fluctuations in demand. Failure to make this distinction is a serious shortcoming of standard approaches to productivity measurement. We aim to implement an alternative state-contingent approach that explicitly recognizes the way uncertainty frames producer choices. The state-contingent approach is consistent with the broader economic literature on general equilibrium and finance, and is expected to yield much improved estimates of productivity growth, rates of innovation and changes in efficiency.