38 Pages Posted: 13 Dec 2006
Date Written: May 2005
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: 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
By Pol Antras
By Kei-mu Yi