Aggregate Consequences of Limited Contract Enforceability

Thomas Cooley (), Ramon Marimon and Vicenzo Quadrini

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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: Innovation; enforcement; aggregate fluctuations; development; financing innovation (search for similar items in EconPapers)
JEL-codes: E10 O11 O16 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: Written 1999-06
View list of references View citations in EconPapers

Downloads: (external link)
http://www.econ.upf.edu/docs/papers/downloads/843.pdf Whole Paper (application/pdf)

Related works:
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2003)
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2004)
Journal Article: Aggregate Consequences of Limited Contract Enforceability (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Series data maintained by ().