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An Evolutionary Game to Model Offshoring and Reshoring of Production Between Developed and Developing Countries

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  • Andrea Bacchiocchi

    (University of Urbino Carlo Bo, Italy)

  • Gian Italo Bischi

    (University of Urbino Carlo Bo, Italy)

Abstract

A dynamic model is proposed to describe the time evolution of production location choices of a multinational enterprise that can decide between two possible manufacturing locations: a stylized developed economy and a developing economy. The model is based on an evolutionary approach according to a replicator dynamics driven by expected profits. The production in each country is determined by the availability of labor inputs and their relative productivity, on wages of skilled and unskilled workers, as well as on cost externalities due to knowledge spillovers and public goods availability. The model includes the effects of relative demand and supply on earnings distribution with two different types of workers (high and low skilled) and the substitution between the two categories is captured by a CES aggregate production function. Behavioral parameters are also considered, such as the cognitive bias that overestimates the convenience of offshoring in term of labor cost and the “made in” effect that brings consumers to pay higher prices for products manufactured in a developed country.

Suggested Citation

  • Andrea Bacchiocchi & Gian Italo Bischi, 2022. "An Evolutionary Game to Model Offshoring and Reshoring of Production Between Developed and Developing Countries," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 11(1), pages 1-29, January.
    • Handle: RePEc:igg:jabe00:v:11:y:2022:i:1:p:1-29
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    References listed on IDEAS

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    Cited by:

    1. Andrea Bacchiocchi & Sebastian Ille & Germana Giombini, 2023. "The effects of a green monetary policy on firms financing costs," Working Papers 2301, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2023.

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