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Technological Change and the Boundaries of the Firm

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  • Lewis, Tracy R
  • Sappington, David E M

Abstract

The authors examine a firm's decision either to produce an essential input itself or to hire a subcontractor to produce the input. The authors focus on how this decision is affected by technological change in the industry. In general, cost-reducing technological change leads the firm to produce the input itself more often. The firm's calculus is shown to depend on whether the subcontractor's skills are idiosyncratic or transferable. In the latter case, technological progress can even be detrimental to the firm and to society as a whole. Copyright 1991 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 81 (1991)
Issue (Month): 4 (September)
Pages: 887-900

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Handle: RePEc:aea:aecrev:v:81:y:1991:i:4:p:887-900

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Cited by:
  1. Kerschbamer, Rudolf & Maderner, Nina & Tournas, Yanni, 2002. "Idiosyncratic investments, outside opportunities and the boundaries of the firm," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1119-1141, October.
  2. Pak-Wai Liu & Xiaokai Yang, 1999. "Division of Labor, Transaction Cost, Emergence of the Firm and Firm Size," CID Working Papers 10, Center for International Development at Harvard University.
  3. Yun, Mikyung, 1999. "Subcontracting relations in the Korean automotive industry: risk sharing and technological capability," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 81-108, January.
  4. Langlois, Richard N & Foss, Nicolai J, 1999. "Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization," Kyklos, Wiley Blackwell, vol. 52(2), pages 201-18.
  5. Kerschbamer, Rudolf & Maderner, Nina & Tournas, Yanni, 2000. "Idiosyncratic Investments, Outside Opportunities and the Boundaries of the Firm," CEPR Discussion Papers 2558, C.E.P.R. Discussion Papers.
  6. Gamal Atallah, 2002. "Production Technology, Information Technology, and Vertical Integration under Asymmetric Information," CIRANO Working Papers 2002s-32, CIRANO.
  7. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc.
  8. Yang, Xiaokai & Ng, Yew-Kwang, 1995. "Theory of the firm and structure of residual rights," Journal of Economic Behavior & Organization, Elsevier, vol. 26(1), pages 107-128, January.
  9. Eliasson, Gunnar & Eliasson, ├ůsa, 2004. "The Theory of the Firm and the Markets for Strategic Acquisitions," Ratio Working Papers 44, The Ratio Institute.
  10. Liu, Pak-Wai & Yang, Xiaokai, 2000. "The theory of irrelevance of the size of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 145-165, June.

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