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Outsourcing, Public Input Provision and Policy Cooperation

30 Pages Posted: 10 Jan 2010  

Thomas Aronsson

University of Umea - Department of Economics; Uppsala University

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2009

Abstract

This paper concerns public input provision as an instrument for redistribution under international outsourcing by using a model-economy comprising two countries, North and South, where firms in the North may outsource part of their low-skilled labor intensive production to the South. We consider two interrelated issues: (i) the incentives for each country to modify the provision of public input goods in response to international outsourcing, and (ii) whether international outsourcing justifies policy cooperation. If the public input good is substitutable for (complementary with) outsourcing in terms of the production function faced by northern firms, then outsourcing contributes to increase (decrease) the public input provision in the North. For the South, the optimal policy response depends on the level of outsourcing. We also show how policy cooperation with respect to public input provision can be designed to increase the overall social welfare.

Keywords: outsourcing, redistribution, public input goods, asymmetric information

JEL Classification: H21, H25, J31, J62

Suggested Citation

Aronsson, Thomas and Koskela, Erkki, Outsourcing, Public Input Provision and Policy Cooperation (December 2009). CESifo Working Paper Series No. 2886. Available at SSRN: https://ssrn.com/abstract=1532688

Thomas Aronsson

University of Umea - Department of Economics ( email )

Umeå University
Umea, SE - 90187
Sweden

Uppsala University

Box 513
Uppsala, 751 20
Sweden

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

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

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