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Managerial Incentives and the International Organization of ProductionElhanan HelpmanHarvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) Gene M. GrossmanPrinceton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) December 2002 NBER Working Paper No. w9403 Abstract: We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment.
Number of Pages in PDF File: 44 working papers seriesDate posted: December 20, 2002Suggested CitationContact Information
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