Aggregate Consequences of Limited Contract Enforceability
40 Pages Posted: 19 Jan 2004
There are 3 versions of this paper
Aggregate Consequences of Limited Contract Enforceability
Aggregate Consequences of Limited Contract Enforceability
Date Written: January 2004
Abstract
We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output. More generally, we show that lower enforceability of contracts will be associated with greater aggregate volatility. A key assumption for this result is that defaulting entrepreneurs are not excluded from the market.
JEL Classification: E30
Suggested Citation: Suggested Citation
Thomas F. Cooley
New York University - Leonard N. Stern School of Business ( email )
44 West Fourth Street, 7-180
Room 7-85
New York, NY 10012
United States
212-998-0870 (Phone)
212-995-4218 (Fax)
Vincenzo Quadrini
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
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