Experience Benefits and Firm Organization
AbstractA principal chooses between in-house production and outsourcing. An agent will be hired when production is in-house. An agent will be contracted upon when production is outsourced. In each case, the agent earns experience benefits: future monetary returns from managing production, reputation, and enjoyment. The principal would like to extract experience bene ts. He can do so when production is outsourced. But the external agent earns information rent from private information about production costs. The principal cannot fully extract experience bene ts when production is in-house because the internal agent must receive a minimum income, although the principal has full information on production costs. Our theory proposes a new trade-off, between information rent under outsourcing, and experience rent under in-house production. The principal chooses outsourcing when experience benefits are high. The principal's organizational choice may be socially inefficient.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2012-007.
Length: 41 pages
Date of creation: Jan 2012
Date of revision:
vertical integration; experience bene ts; experience rents; informational rents.;
Other versions of this item:
- Ingela Alger & Ching-to Albert Ma & Regis Renault, . "Experience Benefits and Firm Organization," Boston University - Department of Economics - Working Papers Series wp2009-007, Boston University - Department of Economics.
- Renault, Régis & Ma, Ching-to Albert & Alger, Ingela, 2012. "Experience Benefits and Firm Organization," Economics Papers from University Paris Dauphine 123456789/12408, Paris Dauphine University.
- Ingela Alger & Ching-to Albert Ma & Regis Renault, 2009. "Experience Benefits and Firm Organization," Carleton Economic Papers 09-03, Carleton University, Department of Economics.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-17 (All new papers)
- NEP-BEC-2012-04-17 (Business Economics)
- NEP-COM-2012-04-17 (Industrial Competition)
- NEP-CTA-2012-04-17 (Contract Theory & Applications)
- NEP-MIC-2012-04-17 (Microeconomics)
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