NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Aggregate Consequences of Limited Contract Enforceability

Thomas Cooley, Ramon Marimon, Vincenzo Quadrini

NBER Working Paper No. 10132
Issued in December 2003
NBER Program(s):   EFG

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.

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Document Object Identifier (DOI): 10.3386/w10132

Published: Cooley, Thomas, Ramon Marimon and Vincenzo Quadrini. "Aggregate Consequences Of Limited Contract Enforceability," Journal of Political Economy, 2004, v112(4,Aug), 817-847. citation courtesy of

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