They that sow in tears shall reap in joy (Psalms 126:5). King David might very well have been referring to a firm facing adjustment costs. Indeed, firms wishing to change their future capacity - to increase it or, say, to make it environmentally friendly - need to make sacrifices today. These might include lowering production for a while.
Such trivial observations fly in the face of most theoretical and empirical research on the firm, which tends to ignore the interdependence of decisions across time. Fortunately, Elvira Silva (MARKINO) has dedicated most of her career to advancing our knowledge of the latter.
This is no easy task. Capturing firms’ intertemporal trade-offs requires the development of a dynamic theory, not merely a multiperiod analysis. A theory that generalizes, in a dynamic setting, ‘concepts measuring the production structure (e.g., economies of scale, economies of scope, capacity utilization) and performance (e.g., allocative and technical efficiency, productivity)’. Further, an adequate theory should be fruitful and wieldy for empirical application. Elvira’s central theoretical and methodological contributions, now conveniently systematized in a book co-authored with Spiro Stefanou (U.S. Dep. of Agriculture) and Alfons Lasink (Wageningen University), definitely are. They further our ability to measure firms’ performance and to understand and predict their decision-making.
The fruitfulness of Elvira’s contributions is showcased in her most recent article with Manuela Magalhães (University of Málaga). Leveraging her theoretical framework, Elvira further captures the interdependency between firms’ investments in increasing productive capacity and in decreasing harmful emissions. She applies her model to the pulp and paper sector, a significant polluter. Using the World Input-Output Database (1995-2009), at the sector, not the firm, level, Elvira estimates the value of emissions to polluters (shadow price), comparing it to taxes on emissions. Her findings reveal that, in several countries, the sector’s shadow price exceeds the imposed tax, evidence of the latter’s insufficient bite. Notably, the most environmentally inefficient pulp and paper sectors are in China, the U.S., and Ireland.
Currently, Elvira is looking for datasets with firm-level data to expand her recent contributions further.
