Foreign Sourcing and Technology Transfer under Asymmetric Information

41 Pages Posted: 21 May 2020 Last revised: 4 Sep 2020

See all articles by Stefano Bolatto

Stefano Bolatto

University of Bologna - Department of Economics

Giuseppe Pignataro

University of Bologna - Department of Economics

Date Written: April 25, 2020

Abstract

Although outsourcing vs. vertical integration is generally treated as a binary choice in international trade literature, firm-level data reveal that inputs can be imported both within and across firms' boundaries, even within narrowly defined industries from the same host country. This paper outlines a model of foreign sourcing which accommodates this practice (defined as mixed-sourcing) based on information asymmetries between a firm and suppliers on both (i) the firm's cost in transmitting knowledge across borders; and (ii) the supplier's productivity in using this know-how to customize input provision. Supply relationships establish that the firm gives an ownership share to its foreign supplier. The paper explores under what conditions the firm engages in multiple relations with suppliers of different types (high and low productive ones) based on differentiated ownership shares, thus compatible with the evidence of mixed-sourcing.

Keywords: Foreign sourcing, Outsourcing vs. integration, Mixed-sourcing, Technology transfer, Information asymmetries, Perfect Bayesian Equilibrium, Private signals.

JEL Classification: D82, D83, D86, F23, L10, L20, O30.

Suggested Citation

Bolatto, Stefano and Pignataro, Giuseppe, Foreign Sourcing and Technology Transfer under Asymmetric Information (April 25, 2020). Available at SSRN: https://ssrn.com/abstract=3585010 or http://dx.doi.org/10.2139/ssrn.3585010

Stefano Bolatto

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Giuseppe Pignataro (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli, 2
https://www.giuseppepignataro.info
Bologna, Bologna 40122
Italy
3331127342 (Phone)
40126 (Fax)

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