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http://ssrn.com/abstract=718163
 
 

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Contracts and the Division of Labor


Elhanan Helpman


Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Daron Acemoglu


Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Pol Antras


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

July 2005

MIT Department of Economics Working Paper No. 05-14; Harvard Institute of Economic Research Discussion Paper No. 2074

Abstract:     
We present a tractable framework for the analysis of the relationship between contract incompleteness, technological complementarities and the division of labor. In the model economy, a firm decides the division of labor and contracts with its worker-suppliers on a subset of activities they have to perform. Worker-suppliers choose their investment levels in the remaining activities anticipating the ex post bargaining equilibrium. We show that greater contract incompleteness reduces both the division of labor and the equilibrium level of productivity given the division of labor. The impact of contract incompleteness is greater when the tasks performed by different workers are more complementary. We also discuss the effects of imperfect credit markets on the division of labor and productivity, and study the choice between the employment relationship versus an organizational form relying on outside contracting. Finally, we derive the implications of our framework for productivity differences and comparative advantage across countries.

Number of Pages in PDF File: 53

Keywords: incomplete contracts, division of labor, productivity

JEL Classification: D2, J2, L2, O3

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Date posted: May 4, 2005  

Suggested Citation

Helpman, Elhanan and Acemoglu, Daron and Antras, Pol, Contracts and the Division of Labor (July 2005). MIT Department of Economics Working Paper No. 05-14; Harvard Institute of Economic Research Discussion Paper No. 2074. Available at SSRN: http://ssrn.com/abstract=718163 or http://dx.doi.org/10.2139/ssrn.718163

Contact Information

Elhanan Helpman (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Daron Acemoglu
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-380b
Cambridge, MA 02142
United States
617-253-1927 (Phone)
617-253-1330 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Pol Antras
Harvard University - Department of Economics ( email )
Littauer Center
Room 230
Cambridge, MA 02138
United States
617-495-1236 (Phone)
617-495-8570 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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