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The "Fundamental Transformation" in Macroeconomics

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  • Caballero, Ricardo J
  • Hammour, Mohamad L

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and unemployment of the economy's productive factors; it hampers growth by depressing the incentives to replace what is outdated and to fully utilize the economy's resources; it disrupts macroeconomic adjustment by inducing a wedge between timid creation and excessive destruction of the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.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 86 (1996)
Issue (Month): 2 (May)
Pages: 181-86

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Handle: RePEc:aea:aecrev:v:86:y:1996:i:2:p:181-86

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  1. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
  3. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-57, April.
  4. Ricardo J. Caballero & Mohamad L. Hammour, 1991. "The Cleansing Effect of Recessions," NBER Working Papers 3922, National Bureau of Economic Research, Inc.
  5. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  6. Ricardo J. Caballero & Mohamad L. Hammour, 1995. "On the Ills of Adjustment," Working papers 95-21, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages F214-F244, June.
  2. Oscar Landerretche Moreno, 2007. "Creation and Destruction: Evidence from an Emerging Market," Working Papers wp246, University of Chile, Department of Economics.
  3. Tse, Chung Yi, 2000. "Monopoly, human capital accumulation and development," Journal of Development Economics, Elsevier, vol. 61(1), pages 137-174, February.
  4. Maciej K. Dudek & ówna Handlowa, 2006. "On Artificial Structural Unemployment," Computing in Economics and Finance 2006 171, Society for Computational Economics.
  5. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc.
  6. J.W.B. Bos & P.C. van Santen & P. Schilp, 2009. "Reallocating profits in restructuring industries: evidence from European and US banking," Working Papers 09-12, Utrecht School of Economics.
  7. Andre Kurmann & Nicolas Petrosky-Nadeau, 2006. "Credit Market Frictions with Costly Capital Reallocation as a Propagation Mechanism," 2006 Meeting Papers 365, Society for Economic Dynamics.
  8. Claudio Michelacci, 2003. "Low Returns in R&D Due to the Lack of Entrepreneurial Skills," Economic Journal, Royal Economic Society, vol. 113(484), pages 207-225, January.
  9. Xavier Galiègue, 1999. "Rigidités microéconomiques, flexibilité macroéconomique. L'émergence d'une macro-économie de la spécificité et de l'irréversibilité," Cahiers d'Économie Politique, Programme National Persée, vol. 35(1), pages 19-36.
  10. Gert-Jan Linders, 2004. "The Effect of Domestic Institutions on International Trade Flows: A sectoral analysis," ERSA conference papers ersa04p357, European Regional Science Association.
  11. Gert Wagner, 2005. "Un Siglo de Tributación Minera en Chile: 1880-1980," Documentos de Trabajo 288, Instituto de Economia. Pontificia Universidad Católica de Chile..
  12. Scholz, Christian M., 1997. "Environmental tax reform with irreversible investment, technological progress and unemployment," Kiel Working Papers 798, Kiel Institute for the World Economy.
  13. Robert E. Hall, 1999. "Aggregate Job Destruction and Inventory Liquidation," NBER Working Papers 6912, National Bureau of Economic Research, Inc.
  14. Michelacci, Claudio, 2002. "Low Returns in R&D Due to Lack of Entrepreneurial Skills," CEPR Discussion Papers 3179, C.E.P.R. Discussion Papers.

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