TY  - JOUR
AU  - Caballero,Ricardo J.
AU  - Hammour,Mohamad L.
TI  - On the Ills of Adjustment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5198
PY  - 1995
Y2  - July 1995
UR  - http://www.nber.org/papers/w5198
L1  - http://www.nber.org/papers/w5198.pdf
N1  - Author contact info:
Ricardo J. Caballero
MIT
Department of Economics
Room E52-373a
Cambridge, MA 02142-1347
Tel: 617/253-0489
Fax: 617/253-6915
E-Mail: caball@mit.edu

Mohamad Hammour
Delta
Ecole Nornale Superieurel
48 Boulvard Jourdan
75014 Paris
FRANCE
E-Mail: hammour@DELTA.ENS.FR
AB  - We analyze market impediments to the process of structural adjustment.  We focus on incomplete-contract inefficiencies in the transactions between workers and firms that render the quasi-rents from 'specific' investment appropriable.  During adjustment, the result is a depressed rate of creation of the new productive structure and excessive destruction of the old one, leading to an employment crisis.  Moreover, appropriability weakens the incentives for extensive restructuring and results in a 'sclerotic' productive structure.  An adequate managed- adjustment program combines vigorous creation incentives in the expanding sector with measures to support employment in the contracting one.  In contrast, the common prescription of gradualism does not act as an effective 'synchronizer' of creation and destruction, for it can only reduce destruction by also reducing an already depressed creation rate.
ER  -