This paper analyses the interactions between growth and the contracting environment in production. With incompleteness in contracting, viable production relationships between firms and workers, and therefore the profitability of industries, depend on the rates of innovation and growth. The speed at which new innovations arrive in turn depends on the profitability of production, for the usual reasons examined in the endogenous growth literature. We show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environments. In particular, we demonstrate that a technological shock (increasing productivity of research) can, through this interaction, lead to a productivity slowdown and a shift in labour market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter-term “contractor” type arrangements. We show the consistency of an increase in the proportion of the labour force under short-term employment, increased relative returns of workers in high-productivity sectors, and increased income inequality, with a productivity slowdown of finite duration.

We provide simple mechanisms to implement the efficient allocation of pollution, first assuming complete information across firms and then allowing for incomplete information. Both mechanisms operate by inducing firms to monitor one another, using firms’ reports to determine pollution allotments and transfers. The complete information mechanism determines a firm’s transfer according to a linear pollution price, set by other firms. Both mechanisms can be modified to be budget-balanced, in and out of equilibrium. The complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies. Under a “single-crossing” condition, the same holds for the incomplete

Universities are engaged in many activities, primarily research and teaching. Many states have instituted performance measures that focus on evaluating a university's success in teaching. We suggest that multitasking may be important in this context, and we consider research outcomes after adoption. We find striking results that depend on university status. Research activity is higher at flagship institutions after the adoption of performance measures. Most of this increase in activity is with respect to the level of research funding and the number of articles produced. In contrast, research funding and the number of publications is dramatically lower at nonflagship institutions. There is some evidence that citations per publication at nonflagship institutions are higher after the adoption of performance standards. The evidence suggests that universities have become more specialized since the introduction of these programs.