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.
