TY  - JOUR
AU  - Caballero,Ricardo J.
AU  - Hammour,Mohamad L.
TI  - The "Fundamental Transformation" in Macroeconomics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5471
PY  - 1996
Y2  - February 1996
UR  - http://www.nber.org/papers/w5471
L1  - http://www.nber.org/papers/w5471.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  - When factors enter into joint-production, they typically develop a degree of specificity with respect to each other.  It is well known that, when combined with contracting difficulties, specificity gives rise to a Williamsonian 'Fundamental Transformation' from an ex-ante competitive relationship to an ex-post bilateral monopoly.  The macroeconomic consequences of widespread specificity are far-reaching. Specificity results in misallocation, underutilization, and unemployment of the economy's productive factors; it hampers growth by depressing the incentives to replace what is outdated and to fully utilize the economy's resources; it disrupts macroeconomic adjustment by inducing a wedge between timid creation and excessive destruction of the old system; and it exacerbates downturns by `elastifying' the cyclical response of inelastic factors.
ER  -