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Incomplete contracts, incentives and economic power

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  • Sripad Motiram

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    (Indira Gandhi Institute of Development Research)

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    Abstract

    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.

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    Bibliographic Info

    Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2010-011.

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    Length: 27 pages
    Date of creation: Jul 2010
    Date of revision:
    Handle: RePEc:ind:igiwpp:2010-011

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    Related research

    Keywords: Incomplete Contracts; Unforeseen/Indescribeable Contingencies; Hold-Up; Classical and Radical Political Economy;

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    1. Anderlini, L. & Felli, L., 1993. "Incomplete Written Contracts: Undescribable States of Nature," Papers, Cambridge - Risk, Information & Quantity Signals 183, Cambridge - Risk, Information & Quantity Signals.
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