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Equilibrium Shirking, Access to Credit and Endogenous TFP Fluctuations

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  • Manoj Atolia
  • Tor Einarsson
  • Milton Marquis

Abstract

type="main" xml:id="ecca12122-abs-0001"> This paper develops a model in which idea-rich, cash-poor entrepreneurs undertake risky investment projects that are subject to future liquidity needs and shirking due to moral hazard. The model suggests that the strength of the entrepreneur's incentive to shirk is countercyclical and that endogenous shirking adds volatility to the economy by increasing the persistence and volatility of TFP. This increase in persistence and volatility is driven by the variation in the number of successfully completed projects, compounded by the effect of the incentive to shirk on access to credit; changes in factor employment play only a minor role.

Suggested Citation

  • Manoj Atolia & Tor Einarsson & Milton Marquis, 2015. "Equilibrium Shirking, Access to Credit and Endogenous TFP Fluctuations," Economica, London School of Economics and Political Science, vol. 82(327), pages 486-507, July.
    • Handle: RePEc:bla:econom:v:82:y:2015:i:327:p:486-507
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    File URL: http://hdl.handle.net/10.1111/ecca.2015.82.issue-327
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    Cited by:

    1. Gilbert Mbaraa & Ryszard Kokoszczyński, 2018. "Corporate governance, tax evasion and business cycles," Working Papers 2018-10, Faculty of Economic Sciences, University of Warsaw.

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