Contracts and Technology Adoption
AbstractWe 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. (JEL D86, O33)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 97 (2007)
Issue (Month): 3 (June)
Other versions of this item:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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