Year: 2003
Type: report
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.
DOI: 10.3386/w10132
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3123712895