Working Paper: NBER ID: w5757
Authors: Ricardo J. Caballero; Mohamad L. Hammour
Abstract: Specific quasi-rents build up in a wide variety of economic relationships, and are exposed to opportunism unless fully protected by contract. The recognition that such contracts are often incomplete has yielded major insights into the organization of microeconomic exchange. Rent appropriation, we argue, also has important macroeconomic implications. Resources are underutilized, factor markets are segmented, production suffers from technological with creation, recessions are excessively sharp, and expansions run into bottlenecks. While, depending on the nature of the shock, expansions may require reinforcement or stabilization, recessions should always be softened. In the long run, institutions, such as those governing capital-labor relations, may evolve to alleviate the problem by balancing appropriation. Technology choice will also be affected, with the appropriated factor partially appropriation as manifested in the role capital-labor substitution played in the rise of European unemployment.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| specificity (Z00) | underemployment of resources (E24) |
| incomplete contracts (D86) | underemployment of resources (E24) |
| incomplete contracts (D86) | segmentation of factor markets (P23) |
| segmentation of factor markets (P23) | involuntary unemployment (J64) |
| incomplete contracts (D86) | sclerotic productive structure (J42) |
| sclerotic productive structure (J42) | inefficient allocation of low-productivity units (D24) |
| job destruction (J63) | job creation (J68) |
| specificity (Z00) | sclerotic productive structure (J42) |
| specificity (Z00) | segmentation of factor markets (P23) |
| specificity (Z00) | excessively sharp recessions (E32) |
| specificity (Z00) | bottlenecked expansions (F12) |