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Payment Uncertainty and the Productivity Slowdown

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Author Info
Keiichiro Kobayashi

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Abstract

This paper proposes a simple model that possibly explains the productivity slowdown observed in Japan during the 1990s. Under a forbearance policy by the government toward nonperforming loans, one keeping insolvent firms afloat, other economic agents become exposed to a higher risk of not being paid by their customers (payment uncertainty). It is shown that the payment uncertainty, working through the market mechanism, causes an endogenous decline in the number of firms that are involved in the production of one good. Resulting disruptions of the division of labor among firms lower macroeconomic productivity. The relevance of this model to Japan's lost decade and other depression episodes, such as the Great Depression in the United States, is discussed.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 04029.

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Length: 21 pages
Date of creation: Sep 2004
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Handle: RePEc:eti:dpaper:04029

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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression (technical appendix)," Working Papers 619, Federal Reserve Bank of Minneapolis.
  2. Lamont, Owen, 1995. "Corporate-Debt Overhang and Macroeconomic Expectations," American Economic Review, American Economic Association, vol. 85(5), pages 1106-17, December. [Downloadable!] (restricted)
  3. Nobuhiro Kiyotaki & John Moore, 2004. "Credit Chains," ESE Discussion Papers 118, Edinburgh School of Economics, University of Edinburgh.
  4. Kobayashi, Keiichiro & Inaba, Masaru, 2005. "Debt disorganization in Japan," Japan and the World Economy, Elsevier, vol. 17(2), pages 151-169, April. [Downloadable!] (restricted)
  5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression," American Economic Review, American Economic Association, vol. 92(2), pages 22-27, May. [Downloadable!] (restricted)
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  6. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  7. Dale W. Jorgenson & Kazuyuki Motohashi, 2003. "Economic Growth of Japan and the United States in the Information Age," Discussion papers 03015, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  8. Lee E. Ohanian, 2001. "Why Did Productivity Fall So Much during the Great Depression?," American Economic Review, American Economic Association, vol. 91(2), pages 34-38, May. [Downloadable!] (restricted)
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  1. Keiichiro Kobayashi, 2006. "Payment uncertainty, the division of labor, and productivity declines in great depressions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 715-741, October. [Downloadable!] (restricted)
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