Equilibrium Shirking, Access to Credit and Endogenous TFP Fluctuations

22 Pages Posted: 14 Jun 2015

See all articles by Manoj Atolia

Manoj Atolia

Florida State University - Department of Economics

Tor Einarsson

University of Iceland

Milton H. Marquis

Florida State University - Department of Economics

Date Written: July 2015

Abstract

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

Atolia, Manoj and Einarsson, Tor and Marquis, Milton H., Equilibrium Shirking, Access to Credit and Endogenous TFP Fluctuations (July 2015). Economica, Vol. 82, Issue 327, pp. 486-507, 2015. Available at SSRN: https://ssrn.com/abstract=2618125 or http://dx.doi.org/10.1111/ecca.12122

Manoj Atolia (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1.850.644.7088 (Phone)
+1.850.644.4535 (Fax)

HOME PAGE: http://mailer.fsu.edu/~matolia/

Tor Einarsson

University of Iceland

Milton H. Marquis

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

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