Self-Enforcing Contracts with Persistence

Martin Dumav, William Fuchs and Jangwoo Lee

No 16888, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show theoretically that, in the presence of persistent productivity shocks, the reliance on selfenforcing contracts due to limited legal enforcement may provide a possible rationale why countries with the worse rule of law might exhibit: (i) higher aggregate TFP volatilities, (ii) larger dispersion of firm-level productivity, and (iii) greater wage inequality. We also provide suggestive empirical evidence consistent with the model’s aggregate implications. Finally, we relate the model’s firm-level implications to existing empirical findings.

Keywords: Dynamic moral hazard; Productivity; Relational contracts; Persistence; Limited commitment (search for similar items in EconPapers)
JEL-codes: C73 D24 D82 D86 E24 L14 (search for similar items in EconPapers)
Date: 2022-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16888 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Self-enforcing contracts with persistence (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:16888

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16888

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().