Contracts and the Division of Labor

We present a tractable framework for the analysis of the relationship between contract incom- pleteness, 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 di¤erent workers are more complementary. We also discuss the e¤ect 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 di¤erences and comparative advantage across countries.

A REVIEW OF SELECTED LITERATURE IN THE ECONOMICS OF DIVISION OF LABOR FROM 5TH CENTURY TO WWII: PART I

First of all, one point seems in order regarding the title: this article is not intended to be comprehensive in its coverage. Rather, it focuses on a deliberately and highly selected body of studies on the division of labor ranging from ancient Greeks to WWII as represented by those reproduced in Sun (2005a), with particular attention paid to what I believe has been relatively unknown even among economists of specialization. A more systematic examination, covering hundreds of studies on the division of labor by ancient Greeks, ancient Chinese, medieval Islamic scholars, medieval Latin scholasticists and Anglo-Europeans of recent centuries is found in Sun (2005b). But what is the (commonly accepted definition of) division of labor? The one that Peter Groenewegen uses for the entry ???division of labor??? in New Palgrave's Dictionary of Economics (1987, p.901) may be accepted by overwhelmingly most, if not all, economists: ???The division of labor may be defined as the division of a process or employment into parts, each of which is carried out by a separate person.??? That is, individuals cooperate, consciously or not, to undertake a divisible process or employment. As such, there naturally emerge two fundamental questions: Why, and how does the separation of employment among persons bear upon important economic and social consequences? In fact, the studies to be surveyed below that emerged over twenty-five centuries or so up to WWII basically centre round the above questions. We will first of all map out the evolution of ideas about division of labor up to the classical political economy in Sections I and II. For the body of economic analysis was considerably enriched since then, with different schools/perspectives simultaneously developing and sometimes competing with one another, we will focus on three themes, explored respectively by three most influential schools that have made contributions of lasting value to the economics of the division of labor. Section III examines the idea of mutual interdependence between increasing returns to the division of labor and the extent of the market originating from Smith, substantiated by Wakefield, Mill, Marshall and culminating in Young (1928). Section IV focuses on the division of labor in society and the division of labor in manufacture, on which Marx offers important insights, foreshadowing some modern theories of the firm well into 1990s. Analyses of unfavorable sociological consequences of the division of labor are also briefly surveyed in this section. Section V examines literature on the overarching theme of the spontaneous order, which can be traced back to Mandeville and was later on elaborated by the Scottish Enlightenment men, and the Austrians especially Hayek. Indeed, the Austrians not only developed a general theory of the spontaneous order but also applied it to analyses of many issues that are concomitant with the division of labor, in particularly the origin of money and the socio-economics of dispersed knowledge. Finally, Section VI concludes.

Gender Division of Labor and Alimony

According to the principle of comparative advantage, the gender division of labor is utility enhancing during marriage. However, in the long term it decreases the earning power of the party who specializes in housework. Once the marriage is dissolved she/he will be the losing party and hence should be compensated by the other party, who specializes in paid work which usually involves higher degree in the accumulation of human capital. As an effective means of compensation, it is shown formally that alimony may promote the gender division of labor and improve Pareto efficiency. The rule of remarriage termination of alimony is doubly inefficient by reducing gender division of labor and by discouraging efficient remarriages.Gender; division of labor; alimony; spousal support; marriage; specialization.

A Benefit from the Division of Labor that Adam Smith Missed

This paper argues that there is an important benefit from the division of labor that Adam Smith failed to mention, that is, the division of labor shortens the time required for capital formation and makes continuous roundabout production possible. The paper presents a simple general equilibrium model to demonstrate this benefit, which is referred to as the “value of time†benefit of the division of labor.the division of labor, time structure of production, capital formation, transaction costs

Marriage, Specialization, and the Gender Division of Labor

A customary gender division of labor is one in which women and men are directed towards certain tasks and/or explicitly prohibited from performing others. We offer an explanation as to why the gender division of labor is so often enforced by custom, and why customary gender divisions of labor generally involve both direction and prohibition. Our model builds on the literature on the marital hold-up problem, and considers both problems in choice of specialty and human capital acquisition in a framework in which agents learn a variety of skills and must search for a marriage partner on the marriage market. We show that wasteful behavior may emerge due to strategic incentives in career choice and human capital acquisition, and that both problems may be mitigated through the customary gender division of labor. We find, however, that a gender division of labor is not Pareto-improving; one gender is made worse off. Both the distributional effects and welfare gains to a customary gender division of labor decrease as opportunities to exchange in markets increase.

Marriage, Specialization, and the Gender Division of Labor

A customary gender division of labor is one in which women and men are directed towards certain tasks and/or explicitly prohibited from performing others. We offer an explanation as to why the gender division of labor is so often enforced by custom, and why customary gender divisions of labor generally involve both direction and prohibition. Our model builds on the literature on the marital hold-up problem, and considers both problems in choice of specialty and human capital acquisition in a framework in which agents learn a variety of skills and then enter the marriage market. We show that wasteful behavior may emerge due to strategic incentives in career choice and human capital acquisition, and that both problems may be mitigated through the customary gender division of labor. We find, however, that a gender division of labor is not Pareto-improving; one gender is made worse off. Both the distributional effects and welfare gains of a customary gender division of labor decrease as opportunities to exchange in markets increase.earnings inequality, income inequality, gender, race, and ethnicity differences

Encephalization and Division of Labor by Early Humans

We draw on Ricardian comparative advantage between distinct persons to map out the division of labor among proto-humans in a village some 1.7 million years ago. A person specialized in maintaining a cooking fire in the village is of particular interest (Ofek [2001]). We are also interested in modelling hunting by village males in teams. The large issue is whether and how specialization (division of labor) and interpersonal trade might have driven brain-expansion in early humans.early humans, division of labor, brain expansion

Contracts and the Division of Labor

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.

The Division of Labor Within Firms

The paper examines the determinants of the division of labor within firms. It provides an explanation of the pervasive change in work organization away from the traditional functional departments and towards multi-tasking and job rotation. Whereas the existing literature on the division of labor within firms emphasizes the returns from specialization and the need for coordination of the work of different workers, the present analysis focuses on the returns from multi-tasking, which is shown to arise from informational and technological complementarities among tasks as well as from the exploitation of the versatility of human capital.Division of labor; specialization; multi-tasking; organization of work; technological change; information flows

Evolutionary Dynamics of the Market Equilibrium with Division of Labor∗

Recently, a growing literature, known as the new classical economics, attempts to resurrect the classical economic thoughts on division of labor within an analytical framework inherited from neoclassical economics. The paper inspects the feasibility of this approach and finds that the current analytical framework of the new classical economics is not able to spell out how individuals’ decisions on specialization are coordinated and how division of labor is realized in a large and decentralized economy. Evolutionary dynamics are then introduced into the existing models. Using a simple economy for example, the paper shows that the equilibrium network of division of labor predicted by the new classical economics is supported by evolutionary stability and can be realized by the outcome of evolutionary processes, such as Replicator Dynamics. Mutation is important in the realization of division of labor since it provides an approach for the economy to escape from an initial state of autarky. The study implies that the inherent evolutionary process of the market constructs an “invisible hand”, which can spontaneously coordinate self-interested individuals’ decentralized decisions on specialization to discover an efficient order of division of labor in a large economy.division of labor, evolutionarily stable strategy, replicator dynamics, mutation