ISBN-10:
0262033623
ISBN-13:
9780262033626
Pub. Date:
06/01/2007
Publisher:
MIT Press
Specificity and the Macroeconomics of Restructuring

Specificity and the Macroeconomics of Restructuring

by Ricardo J. Caballero

Hardcover

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Overview

A proposal that the notion of specificity—the idea that factors of production are not interchangeable—can provide a unified framework to analyze and understand a wide variety of macroeconomic phenomena stemming from the transactional environment and microeconomic restructuring.

The core mechanism that drives economic growth in modern market economies is massive microeconomic restructuring and factor reallocation—the Schumpeterian "creative destruction" by which new technologies replace the old. At the microeconomic level, restructuring is characterized by countless decisions to create and destroy production arrangements. The efficiency of these decisions depends in large part on the existence of sound institutions that provide a proper transactional environment. In this groundbreaking book, Ricardo Caballero proposes a unified framework to analyze and understand a wide variety of macroeconomic phenomena stemming from limitations, especially institutional, that hinder these adjustments.

Caballero argues that macroeconomic models need to be made more "structural" in a precise sense and can not be maintained on the assumption that decisions are fully flexible. What is needed, he proposes, is the notion of specificity—the idea that factors of production are not freely interchangeable. Many of the major macroeconomic developments of recent decades, he argues, fit naturally into this perspective, including the transition problems of Eastern Europe, the heavy weight of labor regulations in Western Europe, the emerging market crises of the 1990s, the prolonged expansion of the U.S. economy, and Japan's stagnation following the collapse of its real estate bubble.

After describing the basic arguments of the book and developing models to illustrate two different kinds of specificity (relationship specificity and technological specificity), Caballero analyzes a variety of aspects of inefficient restructuring and revisits perennial business cycle patterns such as the cyclical behavior of unemployment, investment, and wages. Finally, he looks at the endogenous response of political institutions and technology to opportunistic exploitation of relationship specificity. Economists working on macroeconomics, development, growth, labor, and productivity issues will find Caballero's conceptual framework applicable to phenomena in their fields.

Product Details

ISBN-13: 9780262033626
Publisher: MIT Press
Publication date: 06/01/2007
Series: Yrjo Jahnsson Lectures
Pages: 352
Product dimensions: 6.00(w) x 9.00(h) x 0.88(d)
Age Range: 18 Years

About the Author


Ricardo J. Caballero is Ford International Professor of Economics at MIT.

Table of Contents


Series Foreword     xi
Preface     xiii
Introduction     1
Introduction     3
Restructuring and Institutions     3
Specificity: A Common Thread     4
Macroeconomic Implications and Outline     6
References and Suggested Readings     12
The Empirics of Aggregate Restructuring     15
Restructuring and Gross Flows     15
International Evidence on Gross Flows     17
Gross Flows and Productivity     22
Gross Flows and Restructuring over the Business Cycle     26
Institutional Impediments to Restructuring     38
Conclusion     51
References and Suggested Readings     51
The Basics     57
The "Fundamental Transformation"     59
Introduction     59
Basic (Static-Single-Margin) Model     62
Short-Run Macroeconomic Implications     70
The Destruction Margin     76
Conclusion     82
Note     83
References and Suggested Readings     83
Efficient Restructuring     87
Basic (Dynamic) Model of Restructuring     87
An Opportunity Cost View of Recessions:Efficient Search     97
Conclusion     110
Appendix: Numerical Computations     110
Note     112
References and Suggested Readings     112
Inefficient Restructuring     117
Inefficient Restructuring     119
Search Frictions and Bargaining     119
Decoupled Restructuring     122
Covert and Overt Rigidity     124
The Slope of the Beveridge Curve     126
Average Distortions in Restructuring and Unemployment     131
Economic Policy     138
Conclusion     146
Appendix: Numerical Computations     147
Note     148
References and Suggested Readings     149
Financial Market Specificity and Restructuring     153
A Static Model     154
A Dynamic Model     162
Inefficient Restructuring     176
Conclusion     193
Appendix: Parameter Restrictions     194
Appendix: Division of Specific Quasi-Rents     194
Appendix: Exit Profitability Condition (Steady State)     196
Appendix: Distributional Dynamics     196
Appendix: Model Calibration and Simulation Method      198
Appendix: Detailed Iterative Procedure     200
Note     202
References and Suggested Readings     202
Application: Structural Adjustment     207
Appropriability in a Simple Model of Adjustment     208
Gradualism     222
Managed Adjustment     231
Conclusion     235
Appendix: Wage Differentials     235
Appendix: Welfare Calculations     236
Appendix: "Overt" Wage Rigidity     238
Appendix: Adjustment in an Inefficient Economy     238
Appendix: Parameters     240
Note     240
References and Suggested Readings     240
Institutional and Technological Evolution     243
Institutions, Interest Groups, and the Response of Markets and Technology     245
The Politics of Capital and Labor     246
The Response of Technology     253
Conclusion     265
Appendix: Simulation Parameters     266
Note     266
References and Suggested Readings     266
Application: Three Decades of Unemployment in Western Europe     271
The French Experience     275
Appropriability, Putty-Clay Technology, and Factor Substitution      282
Technological Dimensions of Appropriability     289
Conclusion     305
Appendix: Wage Payments     308
Note     308
References and Suggested Readings     308
Conclusion     311
Final Remarks     313
Index     315

What People are Saying About This

Steven J. Davis

Caballero delivers a powerful analysis of the key role played by factor specificity in productive relationships, investment decisions, and macroeconomic performance. The analysis yields valuable and original insights into unemployment, job creation, productivity, and the institutional underpinnings of growth and development. The book is a major work and an impressive intellectual achievement.

Endorsement

The last word on the important subject of capital taxation and growth. Belongs in the library of every economist interested in the aggregate U.S. economy.

Robert E. Hall, Hoover Institution, Stanford University

Robert E. Hall

The last word on the important subject of capital taxation and growth. Belongs in the library of every economist interested in the aggregate U.S. economy.

From the Publisher

Caballero delivers a powerful analysis of the key role played by factor specificity in productive relationships, investment decisions, and macroeconomic performance. The analysis yields valuable and original insights into unemployment, job creation, productivity, and the institutional underpinnings of growth and development. The book is a major work and an impressive intellectual achievement.

Steven J. Davis, William H. Abbott Professor of International Business and Economics, University of Chicago

Caballero's book is a superb synthesis of recent empirical and theoretical literature on the role of restructuring and reallocation within and between firms for understanding economic fluctuation and growth. It is essential for scholars working on these issues, as well as for those seeking an entry to the debate.

John Haltiwanger, Professor of Economics, University of Maryland

The last word on the important subject of capital taxation and growth. Belongs in the library of every economist interested in the aggregate U.S. economy.

Robert E. Hall, Hoover Institution, Stanford University

John Haltiwanger

Caballero's book is a superb synthesis of recent empirical and theoretical literature on the role of restructuring and reallocation within and between firms for understanding economic fluctuation and growth. It is essential for scholars working on these issues, as well as for those seeking an entry to the debate.

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