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and unemployment of the economy's productive factors; it hampers growth by depressing the incentives to replace what is outdated and to fully utilize the economy's resources; it disrupts macroeconomic adjustment by inducing a wedge between timid creation and excessive destruction of the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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Date of creation: Feb 1996
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- Caballero, Ricardo J & Hammour, Mohamad L, 1996. "The "Fundamental Transformation" in Macroeconomics," American Economic Review, American Economic Association, vol. 86(2), pages 181-86, May.
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
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