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Internalization Revisited

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  • George Norman

Abstract

This paper analyses how a firm chooses between direct ownership and licensing or franchising contracts in supplying distant markets. When contracts are incomplete we show that this choice must balance the moral hazard associated with appointing external agents against that associated with employing internal managers. We show that licensing contracts are preferred when the outside agent has limited opportunities for changing product technology or if there are few spillover effects from the licensee's market to the licensor's home market. Internalization is preferred when the advantages of the 357254201rm are knowledge-based and when reputational effects are strong.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 165 (2009)
Issue (Month): 1 (March)
Pages: 121-133

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200903)165:1_121:ir_2.0.tx_2-8

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References

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  1. George Norman & John Dunning, 1984. "Intra-industry foreign direct investment: Its rationale and trade effects," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 120(3), pages 522-540, September.
  2. repec:fth:michin:282 is not listed on IDEAS
  3. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  4. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  5. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers 28, Department of Economics and Business, Universitat Pompeu Fabra.
  6. John H Dunning, 1995. "Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism," Journal of International Business Studies, Palgrave Macmillan, vol. 26(3), pages 461-491, September.
  7. Rugman, Alan M, 1986. "New Theories of the Multinational Enterprise: An Assessment of Internalization Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 38(2), pages 101-18, May.
  8. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  9. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
  10. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November.
  11. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  12. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  13. Morck, R. & Yeung, B., 1991. "Why Investors Value Multinationality," Working Papers 282, Research Seminar in International Economics, University of Michigan.
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Cited by:
  1. Thandar Khine, 2008. "Foreign Direct Investment Relations between Myanmar and ASEAN," IDE Discussion Papers 149, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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