Managerial Incentives and the International Organization of Production

45 Pages Posted: 27 Feb 2003

See all articles by Elhanan Helpman

Elhanan Helpman

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

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)

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Date Written: February 2003

Abstract

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

Helpman, Elhanan and Grossman, Gene M., Managerial Incentives and the International Organization of Production (February 2003). CEPR Discussion Paper No. 3737. Available at SSRN: https://ssrn.com/abstract=383760

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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Gene M. Grossman

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

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Princeton, NJ 08544-1021
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609-258-4823 (Phone)
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Princeton University - Department of Economics ( email )

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United States

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

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Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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