The "Fundamental Transformation" in Macroeconomics

Ricardo Caballero () and Mohamad L. Hammour

No 5471, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When factors enter into joint-production, they typically develop a degree of specificity with respect to each other. It is well known that, when combined with contracting difficulties, specificity gives rise to a Williamsonian 'Fundamental Transformation' from an ex-ante competitive relationship to an ex-post bilateral monopoly. The macroeconomic consequences of widespread specificity are far-reaching. Specificity results in misallocation, underutilization, and unemployment of the economy's productive factors; it hampers growth by depressing the incentives to replace what is outdated and to fully utilize the economy's resources; it disrupts macroeconomic adjustment by inducing a wedge between timid creation and excessive destruction of the old system; and it exacerbates downturns by `elastifying' the cyclical response of inelastic factors.

JEL-codes: D23 E00 (search for similar items in EconPapers)
Date: 1996-02
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as American Economic Review, papers and proceedings, 86(2) may 1996

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Journal Article: The "Fundamental Transformation" in Macroeconomics (1996)
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