Abstract
We consider a firm where workers have pre-contractual private information regarding their cost of production. Before contracting takes place, the owner of the firm can adopt a new technology that reduces production costs for each type of worker. We show that technology adoption may have an adverse rent effect that counteracts the cost-reducing effect. This is the case whenever the new technology reduces the costs of more efficient types more strongly. Nevertheless, if the owner contracts directly with a worker (two-tier hierarchy), the cost-reducing effect always dominates. By contrast, if the firm has more hierarchical tiers such that contracting with the worker is delegated to a manager, the rent effect may prevail. Then, the owner does not adopt the new technology, even if it is costlessly available.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Acemoglu D, Antràs P, Helpman E (2007) Contracts and technology adoption. Am Econ Rev 97: 916–943
Baker GP, Hubbard TN (2003) Make versus buy in trucking: asset ownership, job design, and information. Am Econ Rev 93: 551–572
Baker GP, Hubbard TN (2004) Contractibility and asset ownership: on-board computers and governance in U.S. trucking. Q J Econ 119: 1443–1479
Becker GS, Murphy KM (1992) The division of labor, coordination costs, and knowledge. Q J Econ 107: 1137–1160
Bental B, Demougin D (2006) Incentive contracts and total factor productivity. Int Econ Rev 47: 1033–1055
Caselli F (1999) Technological revolutions. Am Econ Rev 89: 78–102
Dearden J, Ickes BW, Samuelson L (1990) To innovate or not to innovate: incentives and innovation in hierarchies. Am Econ Rev 80: 1105–1124
Demougin D, Fluet C (2001) Monitoring versus incentives. Eur Econ Rev 45: 1741–1764
Faure-Grimaud A, Martimort D (2001) On some agency costs of intermediated contracting. Econ Lett 71: 75–82
Fisher-Vanden K (2003) Management structure and technology diffusion in chinese state-owned enterprises. Energy Policy 31: 247–257
Ichniowski C, Shaw K (1995) Old dogs and new tricks: determinants of the adoption of productivity-enhancing work practices. In: Brookings papers on economic activity. Microeconomics, pp 1–65
Kräkel M (2008) On adverse selection of technologies. J Inst Theor Econ 164: 343–355
Mansfield E (1961) Technical change and the rate of imitation. Econometrica 29: 741–766
Mansfield E (1968) Industrial research and technological innovation. Norton, New York
McAfee RP, McMillan J (1995) Organizational diseconomies of scale. J Econ Manag Strategy 4(3): 399–426
Oster S (1982) The diffusion of innovation among steel firms: the basic oxygen furnace. Bell J Econ 13: 45–56
Romeo AA (1975) Interindustry and interfirm differences in the rate of diffusion of an innovation. Rev Econ Stat 57: 311–319
Rose NL, Joskow PL (1990) The diffusion of new technologies: evidence from the electric utility industry. RAND J Econ 21: 354–373
Salanié B (2005) The economics of contracts. The MIT Press, Cambridge
Zhu K, Weyant JP (2003) Strategic decisions of new technology adoption under asymmetric information: a game-theoretic model. Decis Sci 34: 643–675
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Demougin, D., Schöttner, A. Technology adoption under hidden information. J Econ 100, 1–18 (2010). https://doi.org/10.1007/s00712-010-0128-1
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00712-010-0128-1