IDEAS home Printed from https://ideas.repec.org/p/osk/wpaper/1625.html
   My bibliography  Save this paper

Macroeconomic Dynamics with Limited Commitment in Financial and Labor Contracts

Author

Listed:
  • Shingo Ishiguro

    (Graduate School of Economics, Osaka University)

Abstract

WThis paper presents a dynamic general equilibrium model to investigate the coevolution of employment and financial systems in the process of economic development when firms f commitment to financial and labor contracts is limited. We show that equilibrium modes of financial and labor contracts endogenously change from the informal contracting phase in which both of them are implicitly self-enforced to the formal contracting phase in which they are formally enforced and become more market-based as economies develop well. Furthermore, the formal contracting phase is irreversible in the sense that, once the economy enters that regime, it never returns back to the informal contracting phase.

Suggested Citation

  • Shingo Ishiguro, 2016. "Macroeconomic Dynamics with Limited Commitment in Financial and Labor Contracts," Discussion Papers in Economics and Business 16-25, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1625
    as

    Download full text from publisher

    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1625.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 285-315.
    2. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
    3. Maurer, Noel & Haber, Stephen, 2007. "Related Lending and Economic Performance: Evidence from Mexico," The Journal of Economic History, Cambridge University Press, vol. 67(3), pages 551-581, September.
    4. Greif,Avner, 2006. "Institutions and the Path to the Modern Economy," Cambridge Books, Cambridge University Press, number 9780521480444, January.
    5. Karsten Jeske, 2006. "Private International Debt with Risk of Repudiation," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 576-593, June.
    6. Chiaki Moriguchi, 2005. "Did American Welfare Capitalists Breach Their Implicit Contracts during the Great Depression? Preliminary Findings from Company-Level Data," ILR Review, Cornell University, ILR School, vol. 59(1), pages 51-81, October.
    7. Gian Luca Clementi & Hugo A. Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 229-265.
    8. Masahiko Aoki, 2013. "The Contingent Governance Of Teams: Analysis Of Institutional Complementarity," Chapters, in: Comparative Institutional Analysis, chapter 14, pages 230-249, Edward Elgar Publishing.
    9. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1125-1156.
    10. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    11. Moriguchi, Chiaki, 2003. "Implicit Contracts, the Great Depression, and Institutional Change: A Comparative Analysis of U.S. and Japanese Employment Relations, 1920–1940," The Journal of Economic History, Cambridge University Press, vol. 63(3), pages 625-665, September.
    12. Simon Johnson & John McMillan & Christopher Woodruff, 2007. "Courts and Relational Contracts," Palgrave Macmillan Books, in: Erik Berglöf & Gérard Roland (ed.), The Economics of Transition, chapter 8, pages 243-297, Palgrave Macmillan.
    13. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, December.
    14. Pearce, David G. & Stacchetti, Ennio, 1998. "The Interaction of Implicit and Explicit Contracts in Repeated Agency," Games and Economic Behavior, Elsevier, vol. 23(1), pages 75-96, April.
    15. Naomi R. Lamoreaux, 1994. "Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England," NBER Books, National Bureau of Economic Research, Inc, number lamo94-1, June.
    16. Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michi Nishihara & Takashi Shibata, 2014. "Preemption, leverage, and financing constraints," Review of Financial Economics, John Wiley & Sons, vol. 23(2), pages 75-89, April.
    2. Shingo Ishiguro, 2011. "Relationships and Growth," Discussion Papers in Economics and Business 11-31-Rev, Osaka University, Graduate School of Economics, revised May 2013.
    3. W. Bentley MacLeod, 2006. "Reputations, Relationships and the Enforcement of Incomplete Contracts," CESifo Working Paper Series 1730, CESifo.
    4. Vincenzo Scoppa, 2003. "Contratti incompleti ed enforcement endogeno. Una rassegna della letteratura," Economia politica, Società editrice il Mulino, issue 3, pages 391-440.
    5. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Ola Kvaløy & Trond E. Olsen, 2009. "Endogenous Verifiability and Relational Contracting," American Economic Review, American Economic Association, vol. 99(5), pages 2193-2208, December.
    7. Lazzarini, Sergio G., 2002. "Order With Some Law: Complementarity VS. Substitution of Formal and Informal Arrangements," Insper Working Papers wpe_24, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    8. Bernardita Vial & Felipe Zurita, 2017. "Entrants' Reputation And Industry Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(2), pages 529-559, May.
    9. Shingo Ishiguro, 2022. "Management cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 257-300, February.
    10. Jin Li & Arijit Mukherjee & Luis Vasconcelos, 2023. "What Makes Agility Fragile? A Dynamic Theory of Organizational Rigidity," Management Science, INFORMS, vol. 69(6), pages 3578-3601, June.
    11. Francisco Queiró, 2022. "Entrepreneurial Human Capital and Firm Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(4), pages 2061-2100.
    12. Bohdan Kukharskyy & Michael Pflüger, 2011. "Relational Contracts and the Economic Well-Being of Nations," Working Papers 095, Bavarian Graduate Program in Economics (BGPE).
    13. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Sakai, Koji & Uesugi, Iichiro & Watanabe, Tsutomu, 2010. "Firm age and the evolution of borrowing costs: Evidence from Japanese small firms," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1970-1981, August.
    15. Kragl, Jenny & Schmid, Julia, 2009. "The impact of envy on relational employment contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 766-779, November.
    16. Michaud, Amanda & Rothert, Jacek, 2014. "Optimal borrowing constraints and growth in a small open economy," Journal of International Economics, Elsevier, vol. 94(2), pages 326-340.
    17. Chang-Tai Hsieh & Peter J. Klenow, 2014. "The Life Cycle of Plants in India and Mexico," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1035-1084.
    18. Gürtler, Oliver, 2005. "On Delegation under Relational Contracts," Bonn Econ Discussion Papers 32/2005, University of Bonn, Bonn Graduate School of Economics (BGSE).
    19. Rui Li & Dana Kiku & Hengjie Ai, 2014. "A Mechanism Design Model of Firm Dynamics: The Case of Limited Commitment," 2014 Meeting Papers 855, Society for Economic Dynamics.
    20. Giovanni Dell’Ariccia & Dalida Kadyrzhanova & Camelia Minoiu & Lev Ratnovski, 2021. "Bank Lending in the Knowledge Economy," The Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 5036-5076.

    More about this item

    Keywords

    Dynamic General Equilibrium; Insider Lending; Implicit and Explicit Labor Contracts; Market Lending;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:osk:wpaper:1625. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The Economic Society of Osaka University (email available below). General contact details of provider: https://edirc.repec.org/data/feosujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.