Input specificity and global sourcing

This paper identifies a new industry-equilibrium channel through which a firm’s productivity affects its organizational choice. In a two-country model with firm heterogeneity and incomplete contracts, we show that the degree of input specificity and the hold-up friction in an outsourcing relation be...

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Bibliographic Details
Published in:Journal of the Japanese and international economies 2010-03, Vol.24 (1), p.69-85
Main Authors: Van Assche, Ari, Schwartz, Galina A.
Format: Article
Language:English
Subjects:
Contracts
Economic performance
Enterprises
Equilibrium
Firm heterogeneity
Firm heterogeneity Input specificity Hold-up problem Incomplete contracts
Globalization
Hold-up problem
Incomplete contracts
Input specificity
Organizational analysis
Organizational structure
Outsourcing
Productivity
Studies
Subcontracting
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Summary:This paper identifies a new industry-equilibrium channel through which a firm’s productivity affects its organizational choice. In a two-country model with firm heterogeneity and incomplete contracts, we show that the degree of input specificity and the hold-up friction in an outsourcing relation become a function of the final good firm’s productivity when inputs are not completely specific. We examine the implications for the equilibrium international sorting pattern of firms.
ISSN:0889-1583
1095-8681
DOI:10.1016/j.jjie.2009.11.001