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The "Fundamental Transformation" in Macroeconomics

Author

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unemployment of the economy's productive factors; it hampers growth by depressing the incentives to replace what is outdated and to fully utilize the economy's resources; it disrupts macroeconomic adjustment by inducing a wedge between timid creation and excessive destruction of the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

  • Caballero, Ricardo J & Hammour, Mohamad L, 1996. "The "Fundamental Transformation" in Macroeconomics," American Economic Review, American Economic Association, vol. 86(2), pages 181-186, May.
    • Handle: RePEc:aea:aecrev:v:86:y:1996:i:2:p:181-86
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    Cited by:

    1. Gert Wagner, 2005. "Un Siglo de Tributación Minera en Chile: 1880-1980," Documentos de Trabajo 288, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. Peter G. Klein, 2010. "F.A. Hayek," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 8, Edward Elgar Publishing.
    3. 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.
    4. Oscar Landerretche Moreno, 2007. "Creation and Destruction: Evidence from an Emerging Market," Working Papers wp246, University of Chile, Department of Economics.
    5. 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.
    6. Maciej K. Dudek & ówna Handlowa, 2006. "On Artificial Structural Unemployment," Computing in Economics and Finance 2006 171, Society for Computational Economics.
    7. Scholz, Christian M., 1997. "Environmental tax reform with irreversible investment, technological progress and unemployment," Kiel Working Papers 798, Kiel Institute for the World Economy.
    8. Olivier Blanchard, 2000. "What Do We Know about Macroeconomics that Fisher and Wicksell Did Not?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1375-1409.
    9. Robert E. Hall, 1999. "Aggregate Job Destruction and Inventory Liquidation," NBER Working Papers 6912, National Bureau of Economic Research, Inc.
    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. Tse, Chung Yi, 2000. "Monopoly, human capital accumulation and development," Journal of Development Economics, Elsevier, vol. 61(1), pages 137-174, February.
    12. 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.
    13. Oscar Landerretche, 2007. "Job flows in chile," Working Papers wp240, University of Chile, Department of Economics.
    14. Bos, J.W.B. & van Santen, P.C. & Schilp, P., 2013. "The importance of reallocation for productivity growth: Evidence from European and US banking," Research Memorandum 056, Maastricht University, Graduate School of Business and Economics (GSBE).
    15. 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.
    16. M’hand Fares, 2005. "Quels fondements à l’incomplétude des contrats?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(3), pages 535-555.
    17. 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.
    18. 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 214-244, June.

    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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