The Space between Markets and Hierarchies

Abstract:     
This article explores the growth of business outsourcing, how it works, and why two firms might logically enter into an outsourcing arrangement not only to cut production costs - but also to craft a sensible governance compromise. It also asks, more generally, whether increased diversity of organizational structures is starting to provide firms with a richer menu of strategies for sharing operational risk - in the same way that recent innovations in corporate finance and capital markets are dramatically altering ownership strategies on the right side of the balance sheet.

Number of Pages in PDF File: 48

Keywords: business outsourcing, theory of the firm, agency cost problem

JEL Classification: L22

Accepted Paper Series