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On the Grouping of Tasks into Firms: Make‐or‐Buy with Interdependent Parts

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  • Sharon Novak
  • Birger Wernerfelt

Abstract

We study the division of labor within production systems and look for the optimal grouping of tasks into firms. Using a unique dataset on the global automobile industry, we present evidence consistent with the prediction that pairs of tasks requiring more frequent mutual adaptation are more likely to be performed by the same firm. By taking account of interdependencies between tasks, our econometric approach generalizes standard make‐or‐buy analysis and yields improvements in predictive accuracy.

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  • Sharon Novak & Birger Wernerfelt, 2012. "On the Grouping of Tasks into Firms: Make‐or‐Buy with Interdependent Parts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 53-77, March.
    • Handle: RePEc:bla:jemstr:v:21:y:2012:i:1:p:53-77
    DOI: j.1530-9134.2011.00322.x
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    Cited by:

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    2. Jeremy T. Fox, 2018. "Estimating matching games with transfers," Quantitative Economics, Econometric Society, vol. 9(1), pages 1-38, March.
    3. Verena Nowak & Christian Schwarz & Jens Suedekum, 2012. "On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?," CESifo Working Paper Series 3823, CESifo.
    4. Birger Wernerfelt & Alvin Silk & Shuyi Yu, 2021. "Internalization of Advertising Services: Testing a Theory of the Firm," Marketing Science, INFORMS, vol. 40(5), pages 946-963, September.
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    6. Birger Wernerfelt, 2013. "Small forces and large firms: Foundations of the RBV," Strategic Management Journal, Wiley Blackwell, vol. 34(6), pages 635-643, June.
    7. Joon Mahn Lee & Rahul Kapoor, 2017. "Complementarities and Coordination: Implications for Governance Mode and Performance of Multiproduct Firms," Organization Science, INFORMS, vol. 28(5), pages 931-946, October.

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