Contracts and the Division of Labor

38 Pages Posted: 13 Dec 2006  

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)

Elhanan Helpman

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

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Date Written: May 2005

Abstract

We develop a tractable framework for the analysis of the relationship between contractual incompleteness, technological complementarities, and technology adoption. In our model a firm chooses its technology and investment levels in contractible activities by suppliers of intermediate inputs. Suppliers then choose investments in noncontractible activities, anticipating payoffs from an ex post bargaining game. We show that greater contractual incompleteness leads to the adoption of less advanced technologies and that the impact of contractual incompleteness is more pronounced when there is greater complementary among the intermediate inputs. We study a number of applications of the main framework and show that the mechanism proposed in the paper can generate sizable productivity differences across countries with different contracting institutions and that differences in contracting institutions lead to endogenous comparative advantage differences.

Suggested Citation

Acemoglu, Daron and Antras, Pol and Helpman, Elhanan, Contracts and the Division of Labor (May 2005). NBER Working Paper No. w11356. Available at SSRN: https://ssrn.com/abstract=727136

Daron Acemoglu (Contact Author)

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

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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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Elhanan Helpman

Harvard University - Department of Economics ( email )

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