Contracts and the Division of Labor

53 Pages Posted: 4 May 2005

See all articles by Elhanan Helpman

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)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2005

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.

Keywords: incomplete contracts, division of labor, productivity

JEL Classification: D2, J2, L2, O3

Suggested Citation

Helpman, Elhanan and Acemoglu, Daron and Antras, Pol, Contracts and the Division of Labor (July 2005). Available at SSRN: https://ssrn.com/abstract=718163 or http://dx.doi.org/10.2139/ssrn.718163

Elhanan Helpman (Contact Author)

Harvard University - Department of Economics ( email )

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Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Pol Antras

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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