Aggregate consequences of limited contract enforceability

Thomas Cooley, Ramon Marimon and Vincenzo 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)
Date: 1999-06, Revised 2003-10
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Aggregate Consequences of Limited Contract Enforceability (2004)
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2004)
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2003)
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:843

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