The Macroeconomics of Specificity

51 Pages Posted: 9 Dec 1996 Last revised: 4 Oct 2010

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)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1996

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.

Suggested Citation

Caballero, Ricardo J. and Hammour, Mohamad L., The Macroeconomics of Specificity (September 1996). NBER Working Paper No. w5757. Available at SSRN: https://ssrn.com/abstract=3579

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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