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Contracts, firm dynamics, and aggregate productivity

Bernabe Lopez-Martin () and David Perez-Reyna ()

Journal of Economic Dynamics and Control, 2021, vol. 130, issue C

Abstract: We construct a firm-dynamics framework to evaluate the impact of the enforcement of contracts between final goods producers and intermediate goods suppliers on firm life-cycle growth, technology accumulation, and aggregate productivity. We show that contractual incompleteness implies a wedge on profits, which disincentives technology accumulation and is potentially correlated with technology, in addition to wedges on production decisions. In our model we find that contract enforcement accounts for differences in output per worker of 22 percent when we compare India to the U.S. The impact on firm life-cycle growth, the age and size distribution of firms is quantitatively significant.

Keywords: Contracts; Aggregate productivity; Firm dynamics; Size dependent-distortions (search for similar items in EconPapers)
JEL-codes: D86 E23 O11 O40 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Contracts, Firm Dynamics, and Aggregate Productivity (2021) Downloads
Working Paper: Contracts, Firm Dynamics and Aggregate Productivity (2019) Downloads
Working Paper: Contracts, Firm Dynamics and Aggregate Productivity (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:130:y:2021:i:c:s0165188921001251

DOI: 10.1016/j.jedc.2021.104190

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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