Outsourcing and Technological Innovations: A Firm-Level Analysis

31 Pages Posted: 23 May 2008

See all articles by Ann P. Bartel

Ann P. Bartel

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Saul Lach

Hebrew University of Jerusalem - Department of Economics; CEPR

Nachum Sicherman

Columbia University; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Abstract

This paper presents a dynamic model that analyzes how firms' expectations with regards to technological change influence the demand for outsourcing. We show that outsourcing becomes more beneficial to the firm when technology is changing rapidly. As the pace of innovations in production technology increases, the firm has less time to amortize the sunk costs associated with purchasing the new technologies. This makes producing in-house with the latest technologies relatively more expensive than outsourcing. The model therefore provides an explanation for the recent increases in outsourcing that have taken place in an environment of increased expectations for technological change. We test the predictions of the model using a panel dataset on Spanish firms for the period 1990 through 2002. The empirical results support the main prediction of the model, namely, that all other things equal, the demand for outsourcing increases with the probability of technological change.

Keywords: technological change, outsourcing

JEL Classification: O33, L24, L11, J21

Suggested Citation

Bartel, Ann P. and Lach, Saul and Sicherman, Nachum, Outsourcing and Technological Innovations: A Firm-Level Analysis. , Vol. , pp. -, . Available at SSRN: https://ssrn.com/abstract=1135910 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Ann P. Bartel (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Saul Lach

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3253 (Phone)
+972 2 581 6071 (Fax)

HOME PAGE: http://economics.huji.ac.il/facultye/saul/saul.html

CEPR

London
United Kingdom

Nachum Sicherman

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4464 (Phone)
212-316-9355 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
168
Abstract Views
1,023
rank
174,797
PlumX Metrics