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Input specificity and global sourcing

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  • Van Assche, Ari
  • Schwartz, Galina A.
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    Abstract

    This paper identifies a new industry-equilibrium channel through which a firm's productivity affects its organizational choice. In a two-country model with firm heterogeneity and incomplete contracts, we show that the degree of input specificity and the hold-up friction in an outsourcing relation become a function of the final good firm's productivity when inputs are not completely specific. We examine the implications for the equilibrium international sorting pattern of firms.

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    File URL: http://www.sciencedirect.com/science/article/B6WMC-4XS6FFR-1/2/eb992a81aaf8947c84b035e5cd337d50
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

    Volume (Year): 24 (2010)
    Issue (Month): 1 (March)
    Pages: 69-85

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    Handle: RePEc:eee:jjieco:v:24:y:2010:i:1:p:69-85

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    Web page: http://www.elsevier.com/locate/inca/622903

    Related research

    Keywords: Firm heterogeneity Input specificity Hold-up problem Incomplete contracts;

    References

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    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
    2. Eiichi Tomiura, 2004. "Foreign outsourcing and firm-level characteristics: evidence from Japanese manufacturers," Hi-Stat Discussion Paper Series d04-64, Institute of Economic Research, Hitotsubashi University.
    3. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    4. Helpman, Elhanan, 2006. "Trade, FDI and the Organization of Firms," CEPR Discussion Papers 5589, C.E.P.R. Discussion Papers.
    5. Pol Antràs & Esteban Rossi-Hansberg, 2008. "Organizations and Trade," NBER Working Papers 14262, National Bureau of Economic Research, Inc.
    6. Nisvan Erkal, 2003. "Buyer-Supplier Interaction, Asset Specificity, And Product Choice," Department of Economics - Working Papers Series 885, The University of Melbourne.
    7. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
    8. Alireza Naghavi & Gianmarco I.P. Ottaviano, 2009. "Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring," KITeS Working Papers 022, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2009.
    9. Robert C. Feenstra & Barbara J. Spencer, 2005. "Contractual Versus Generic Outsourcing: The Role of Proximity," NBER Working Papers 11885, National Bureau of Economic Research, Inc.
    10. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    11. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
    12. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
    13. Keith Head & John Ries & Barbara J. Spencer, 2004. "Vertical Networks and US Auto Parts Exports: Is Japan Different?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 37-67, 03.
    14. Christopher Johann Kurz, 2006. "Outstanding Outsourcers: A Firm- and Plant-Level Analysis of Production Sharing," Working Papers 06-02, Center for Economic Studies, U.S. Census Bureau.
    15. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, vol. 95(2), pages 19-24, May.
    16. Fabrice Defever & Farid Toubal, 2007. "Productivity and the Sourcing Modes of Multinational Firms: Evidence from French Firm-Level Data," CEP Discussion Papers dp0842, Centre for Economic Performance, LSE.
    17. Andrabi, Tahir & Ghatak, Maitreesh & Khwaja, Asim Ijaz, 2006. "Subcontractors for tractors: Theory and evidence on flexible specialization, supplier selection, and contracting," Journal of Development Economics, Elsevier, vol. 79(2), pages 273-302, April.
    18. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    19. Christopher Johann Kurz, 2006. "Outstanding outsourcers: a firm- and plant-level analysis of production sharing," Finance and Economics Discussion Series 2006-04, Board of Governors of the Federal Reserve System (U.S.).
    20. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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