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PAYMENT UNCERTAINTY AND THE PRODUCTIVITY SLOWDOWN

Published online by Cambridge University Press:  19 March 2007

KEIICHIRO KOBAYASHI
KEIICHIRO KOBAYASHI
Affiliation:
The Research Institute of Economy, Trade and Industry
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Abstract

This paper proposes a simple theory to explain the productivity slowdown observed in Japan during the 1990s. Under a forbearance policy by the government toward nonperforming loans, one keeping insolvent firms afloat, other economic agents become exposed to a higher risk of not being paid by their customers (payment uncertainty). It is shown that the payment uncertainty, working through a competitive market, causes an endogenous decline in the number of firms that are involved in the production of one good. Resulting disruptions of the division of labor among firms lower macroeconomic productivity. The performance of the model is compared with that of the Japanese economy in the 1990s.

Keywords

Payment UncertaintyProductivityDivision of LaborJapan's Lost Decade
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 11 , Issue 2 , April 2007 , pp. 231 - 248
Copyright
© 2007 Cambridge University Press

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