Contracts and the division of labor
By: [by] Daron Acemoglu, Pol Antras [and] Elhanan Helpman
Contributors: Antrs̉, Pol, 1975-; Helpman, Elhanan; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 05-14; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 05-14.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Number of pages: 52
Description: We present a tractable framework for the analysis of the relationship between contract incompleteness, technological complementarities and the division of labor. In the model economy, a firm decides the division of labor and contracts with its worker-suppliers on a subset of activities they have to perform. Worker-suppliers choose their investment levels in the remaining activities anticipating the ex post bargaining equilibrium. We show that greater contract incompleteness reduces both the division of labor and the equilibrium level of productivity given the division of labor. The impact of contract incompleteness is greater when the tasks performed by different workers are more complementary. We also discuss the effects of imperfect credit markets on the division of labor and productivity, and study the choice between the employment relationship versus an organizational form relying on outside contracting. Finally, we derive the implications of our framework for productivity differences and comparative advantage across countries. Keywords: incomplete contracts, division of labor, productivity. JEL Classifications: D2, J2, L2, O3.
Notes: "May 4, 2005."

Includes bibliographical references (p. 50-52).

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