On the Grouping of Tasks into Firms: Make‐Or‐Buy with Interdependent Parts

Posted: 19 Jan 2012

See all articles by Sharon Novak

Sharon Novak

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Birger Wernerfelt

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: Spring 2012

Abstract

We study the division of labor within production systems and look for the optimal grouping of tasks into firms. Using a unique dataset on the global automobile industry, we present evidence consistent with the prediction that pairs of tasks requiring more frequent mutual adaptation are more likely to be performed by the same firm. By taking account of interdependencies between tasks, our econometric approach generalizes standard make‐or‐buy analysis and yields improvements in predictive accuracy.

Suggested Citation

Novak, Sharon and Wernerfelt, Birger, On the Grouping of Tasks into Firms: Make‐Or‐Buy with Interdependent Parts (Spring 2012). Journal of Economics & Management Strategy, Vol. 21, Issue 1, pp. 53-77, 2012. Available at SSRN: https://ssrn.com/abstract=1987965 or http://dx.doi.org/10.1111/j.1530-9134.2011.00322.x

Sharon Novak (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Birger Wernerfelt

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
617-253-7192 (Phone)
617-258-7597 (Fax)

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