Incomplete Contracts, Incentives and Economic Power

Published By: IGIDR on eSS | Published Date: July, 03 , 2010

This paper formalizes ideas from classical and radical political economy on task allocation and technology adoption under capitalism. A few previous studies have attempted this, but the framework and results in this paper are different. I model labor contracts that are incomplete owing to unforeseen/indescribable contingencies, leading to Pareto-improving renegotiation and a hold-up problem. Given path dependence, the allocation is sub-optimal, with the extent of inefficiency depending upon the degree of incompleteness. This model captures insights from the above literature on the microeconomic roots of inefficiency and power. It also provides a concrete setting where indescribable contingencies do (or don’t) matter - a much-debated issue. [WP-2010-011]

Author(s): Sripad Motiram | Posted on: Nov 03, 2010 | Views(750) | Download (441)

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