Managerial Incentives and the International Organization of Production
45 Pages Posted: 27 Feb 2003
Date Written: February 2003
We develop a model in which 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
JEL Classification: D23, F23, L22
Suggested Citation: Suggested Citation