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The Macroeconomics of Specificity

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  • Ricardo J. Caballero
  • Mohamad L. Hammour

Abstract

Specific quasi-rents build up in a wide variety of economic relationships, and are exposed to opportunism unless fully protected by contract. The recognition that such contracts are often incomplete has yielded major insights into the organization of microeconomic exchange. Rent appropriation, we argue, also has important macroeconomic implications. Resources are underutilized, factor markets are segmented, production suffers from technological with creation, recessions are excessively sharp, and expansions run into bottlenecks. While, depending on the nature of the shock, expansions may require reinforcement or stabilization, recessions should always be softened. In the long run, institutions, such as those governing capital-labor relations, may evolve to alleviate the problem by balancing appropriation. Technology choice will also be affected, with the appropriated factor partially appropriation as manifested in the role capital-labor substitution played in the rise of European unemployment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5757.

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Date of creation: Sep 1996
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Publication status: published as Journal of Political Economy, Vol. 106, no. 4 (August 1998): 724-767.
Handle: RePEc:nbr:nberwo:5757

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