Incomplete contracts, incentives and economic power

Content Provider	Indira Gandhi Institute of Development Research (IGIDR)
Author	Motiram, Sripad
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.
File Format	PDF
Language	English
Access Restriction	Open
Subject Keyword	Incomplete Contracts Unforeseen/Indescribeable Contingencies Hold-Up Classical and Radical Political Economy
Content Type	Text
Resource Type	Report