Contracts and technology adoption

Daron Acemoglu*, Pol Antràs, Elhanan Helpman

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

193 Scopus citations

Abstract

We develop a tractable framework for the analysis of the relationship between contractual incompleteness, technological complementarities, and technology adoption. In our model, a firm chooses its technology and investment levels in contractible activities by suppliers of intermediate inputs. Suppliers then choose investments in noncontractible activities, anticipating payoffs from an ex post bargaining game. We show that greater contractual incompleteness leads to the adoption of less advanced technologies, and that the impact of contractual incompleteness is more pronounced when there is greater complementary among the intermediate inputs. We study a number of applications of the main framework and show that the mechanism proposed in the paper can generate sizable productivity differences across countries with different contracting institutions, and that differences in contracting institutions lead to endogenous comparative advantage differences.

Original languageEnglish
Pages (from-to)916-943
Number of pages28
JournalAmerican Economic Review
Volume97
Issue number3
DOIs
StatePublished - Jun 2007
Externally publishedYes

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