Recent research focuses on how the limitations in information processing by firm managers impact production decisions, resource allocation, and the overall economy. Managers have a limited capacity to process information, which affects their ability to handle uncertainty from both firm-specific and economy-wide shocks. Findings suggest that increased uncertainty at the aggregate level leads to a shift in capacity allocation, resulting in resource misallocation and lower output. On the other hand, idiosyncratic uncertainty has a non-monotonic effect on aggregate productivity. Empirically, findings provide new insights into the relationship between inputs and labor productivity.

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