Institutions, Holdup and Automation

Abstract

This paper documents a positive relationship between labor-friendly institutions and investment in industrial robots in a sample of advanced economies. Institutions explain a substantial proportion of cross-country variation in automation. The relationship between institutions and robots is stronger in sunk cost-intensive industries, where producers are more vulnerable to holdup. This suggests that automation is used by producers as a tool to thwart rent appropriation by labor.

Keywords: automation, robots, holdup, institutions, unions, sunk costs, appropriability, bargaining, frictions, rents, technology adoption

JEL Classification: O330, O430, O570, J500