Bernabe Lopez-Martin, Banco Central de Chile

Sala 209

“Contracts, Firm Dynamics, and Aggregate Productivity”

Coautoreado con David Perez-Reyna

Abstract: We construct a framework of firm dynamics to evaluate the impact of the enforcement of contracts between final goods producers and their intermediate goods suppliers on firm life-cycle growth, technology accumulation and aggregate productivity. We build upon the tractable contracts model of Acemoglu et al. (2007), where the final goods firm chooses its technology level as well as investment levels in contractible activities conducted by suppliers of intermediate inputs. Suppliers select investments in noncontractible activities, anticipating the payoffs of a bargaining game with the producer of the final goods. We show that contractual incompleteness implies a wedge on profits for producers of final goods, potentially correlated with the level of technology of the firm, depending on the parameterization of the model. This wedge disincentives technology accumulation at the firm level in our dynamic model. We evaluate this mechanism in general equilibrium to analyze its quantitative implications, and find that our model accounts for differences in output per worker of up to 33 percent across economies with complete and incomplete contracts. The impact on firm life-cycle growth, the age and size distribution of firms is quantitatively signicant.

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