The Macroeconomics of Specificity

Posted: 8 Oct 1998

See all articles by Ricardo J. Caballero

Ricardo J. Caballero

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Mohamad L. Hammour

Ecole Normale Superieure (ENS); Centre for Economic Policy Research (CEPR)

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Abstract

Specific quasi rents arise in a variety of economic relationships and are exposed to opportunism unless fully protected by contract. Rent appropriation has important macroeconomic consequences. Resources are underutilized, factor markets are segmented, production suffers from technological "sclerosis," job creation and destruction are unbalanced, recessions are excessively sharp, and expansions run into bottlenecks. While, depending on the shock, expansions may require reinforcement or stabilization, recessions should typically be softened. In the long run, institutions may evolve to alleviate the problem by balancing appropriation. Technology choice will also be affected, with the appropriated factor partially "excluding" the other from production to reduce appropriation.

JEL Classification: E20, E32

Suggested Citation

Caballero, Ricardo J. and Hammour, Mohamad L., The Macroeconomics of Specificity. Journal of Political Economy, Vol. 106, No. 4, August 1998. Available at SSRN: https://ssrn.com/abstract=102918

Ricardo J. Caballero (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Mohamad L. Hammour

Ecole Normale Superieure (ENS) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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