Natural Disasters and Markups

Conteduca, Francesco Paolo and Panon, Ludovic (2024): Natural Disasters and Markups.

Abstract

Can firm-level markup adjustments affect the aggregate cost of large, localized shocks? Using firm-level data from Italy, we show that natural disasters lead to a persistent decline in markups among affected manufacturing firms, especially for high-productivity ones. We implement an oligopolistic competition model with idiosyncratic shocks directly on firm-level data and invert it to recover productivity for firms impacted by the 2012 Northern Italy earthquake. We then quantify how markup adjustments shape aggregate manufacturing productivity and welfare. Our baseline results suggest that markup changes amplified the aggregate productivity and welfare losses of the earthquake by approximately 20%.

• Item Type: MPRA Paper
• Language: English
• Keywords: Natural Disasters, Markups, Oligopolistic Competition, Aggregate Productivity, Misallocation, Firm Heterogeneity
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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