Aggregate Consequences of Limited Contract Enforceability

Thomas Cooley, Ramon Marimon and Vincenzo Quadrini

No 10132, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E3 G0 (search for similar items in EconPapers)
Date: 2003-12
New Economics Papers: this item is included in nep-dge
Note: EFG
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Citations: View citations in EconPapers (29)

Published as Cooley, Thomas, Ramon Marimon and Vincenzo Quadrini. "Aggregate Consequences Of Limited Contract Enforceability," Journal of Political Economy, 2004, v112(4,Aug), 817-847.

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Working Paper: Aggregate Consequences of Limited Contract Enforceability (2004)
Working Paper: Aggregate Consequences of Limited Contract Enforceability (2003)
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