Monday, June 12th 2017 – 13:00 – 14:00
Maison des Sciences Économiques, Room 19
Maison des Sciences Économiques, 106-112 bd de l’Hôpital, 75013 Paris, Métro 5 Campo Formio, bus 57, 67, 27, 83 ou 47
with Ezra Oberfield (Princeton & NBER)
Abstract – How costly is weak contract enforcement? Using microdata on Indian manufacturing plants, we show that in states with weaker enforcement, as measured by judicial lags, production and sourcing decisions appear systematically distorted, with the effect concentrated in industries that rely more heavily on inputs that require customization. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The distortions accumulate along supply chains.