The "Fundamental Transformation" in Macroeconomics
AbstractWhen 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and unemployment of the economy's productive factors; it hampers growth by depressing the incentives to replace what is outdated and to fully utilize the economy's resources; it disrupts macroeconomic adjustment by inducing a wedge between timid creation and excessive destruction of the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.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 86 (1996)
Issue (Month): 2 (May)
Other versions of this item:
- Ricardo J. Caballero & Mohamad L. Hammour, 1996. "The "Fundamental Transformation" in Macroeconomics," NBER Working Papers 5471, National Bureau of Economic Research, Inc.
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
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