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Incomplete Contracts, Incentives and Economic Power

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  • Sripad Motiram

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. [WP-2010-011]

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  • Sripad Motiram, 2010. "Incomplete Contracts, Incentives and Economic Power," Working Papers id:3123, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:3123
    Note: Institutional Papers
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    References listed on IDEAS

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