Incomplete Contracts, Incentives and Economic Power
AbstractThis 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 dont) matter - a much-debated issue.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 23017.
Date of creation: Jan 2010
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Incomplete Contracts; Unforeseen/Indescribeable Contingencies; Hold-Up; Classical and Radical Political Economy;
Find related papers by JEL classification:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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- Patrick Bolton & Mathias Dewatripont, 2005.
MIT Press Books, The MIT Press,
The MIT Press,
edition 1, volume 1, number 0262025760, December.
- Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/9543, ULB -- Universite Libre de Bruxelles.
- Anderlini, L. & Felli, L., 1993.
"Incomplete Written Contracts: Undescribable States of Nature,"
Papers, Cambridge - Risk, Information & Quantity Signals
183, Cambridge - Risk, Information & Quantity Signals.
- Anderlini, Luca & Felli, Leonardo, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1085-1124, November.
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