Managerial Incentives and the International Organization of Production

44 Pages Posted: 6 Dec 2002

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2002

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.

Keywords: Outsourcing, Direct Foreign Investment, Theory of the Firm, Intra-firm Trade

JEL Classification: L22, F23, D23

Suggested Citation

Grossman, Gene M. and Helpman, Elhanan, Managerial Incentives and the International Organization of Production (December 2002). Available at SSRN: https://ssrn.com/abstract=359700 or http://dx.doi.org/10.2139/ssrn.359700

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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Princeton University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Elhanan Helpman (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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