Aggregate Consequences of Limited Contract Enforceability

Thomas Cooley (), Ramon Marimon and Vincenzo Quadrini ()

No 4173, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output. More generally, we show that lower enforceability of contracts will be associated with greater aggregate volatility. A key assumption for this result is that defaulting entrepreneurs are not excluded from the market.

Keywords: aggregate volatility; amplification; contract enforceability; G00 (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2004-01
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Related works:
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2003)
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2003)
Journal Article: Aggregate Consequences of Limited Contract Enforceability (2004)
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