Technology Adoption Under Hidden Information

24 Pages Posted: 3 Aug 2006 Last revised: 27 Feb 2015

See all articles by Dominique Demougin

Dominique Demougin

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Governance & Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Anja Schöttner

Humboldt University of Berlin - School of Business and Economics

Date Written: August 5, 2008

Abstract

We consider a firm where workers have pre-contractual private information on 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, the cost-reducing effect always dominates. By contrast, if the owner delegates contracting with workers to a manager, the rent effect may prevail. In this case, the owner does not adopt the new technology, even if it is costlessly available.

Keywords: Adverse Selection, Hierarchies, Technology

JEL Classification: D82, L23, O33

Suggested Citation

Demougin, Dominique and Schöttner, Anja, Technology Adoption Under Hidden Information (August 5, 2008). Available at SSRN: https://ssrn.com/abstract=921005 or http://dx.doi.org/10.2139/ssrn.921005

Dominique Demougin (Contact Author)

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Governance & Economics ( email )

International University Schloss Reichartshausen
Campus Wiesbaden, Soehnleinstrasse 8A
Wiesbaden, 65201
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Muenchen, 81679
Germany

Anja Schöttner

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

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