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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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.
- Ingela Alger & Ching-to Albert Ma & Regis Renault, 2009. "Experience Benefits and Firm Organization," Carleton Economic Papers 09-03, Carleton 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.
- 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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jacques Crémer & Luis Garicano & Andrea Prat, 2007.
"Language and the Theory of the Firm,"
The Quarterly Journal of Economics,
MIT Press, vol. 122(1), pages 373-407, 02.
- Ingela Alger & Régis Renault, 2007.
"Screening Ethics when Honest Agents Keep their Word,"
Springer, vol. 30(2), pages 291-311, February.
- Ingela Alger & Regis Renault, 2003. "Screening Ethics when Honest Agents Keep their Word," Boston College Working Papers in Economics 562, Boston College Department of Economics, revised 09 Nov 2004.
- Manuel González & Benito Arruñada & Alberto Fernández, 1999.
"Causes of subcontracting: Evidence from panel data on construction firms,"
Economics Working Papers
428, Department of Economics and Business, Universitat Pompeu Fabra.
- Gonzalez-Diaz, Manuel & Arrunada, Benito & Fernandez, Alberto, 2000. "Causes of subcontracting: evidence from panel data on construction firms," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 167-187, June.
- Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
- Hubbard, Thomas N, 2001. "Contractual Form and Market Thickness in Trucking," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 369-86, Summer.
- Rosen, Sherwin, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 366-82, August.
- Kessler, Anke & Lülfesmann, Christoph, 2000.
"The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments,"
CEPR Discussion Papers
2533, C.E.P.R. Discussion Papers.
- Anke S. Kessler & Christoph Lülfesmann, 2006. "The Theory of Human Capital Revisited: on the Interaction of General and Specific Investments," Economic Journal, Royal Economic Society, vol. 116(514), pages 903-923, October.
- Christoph Luelfesmann, 2000. "The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments," Econometric Society World Congress 2000 Contributed Papers 0659, Econometric Society.
- Anke S. Kessler & Christoph Lülfesmann, 2002. "The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments," CESifo Working Paper Series 776, CESifo Group Munich.
- Joan Ramon Rosés, 2005.
"Subcontracting and vertical integration in the Spanish cotton industry,"
Economics Working Papers
816, Department of Economics and Business, Universitat Pompeu Fabra.
- Joan R. Roses, 2005. "Subcontracting and Vertical Integration in the Spanish Cotton Industry," Working Papers in Economic History wh051302, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
- Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
- Masten, Scott E, 1988. "A Legal Basis for the Firm," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 181-98, Spring.
- Holmstrom, Bengt, 1999.
"Managerial Incentive Problems: A Dynamic Perspective,"
Review of Economic Studies,
Wiley Blackwell, vol. 66(1), pages 169-82, January.
- Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
- Masten, Scott E. & Meehan, James Jr. & Snyder, Edward A., 1989. "Vertical integration in the U.S. auto industry : A note on the influence of transaction specific assets," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 265-273, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Sullivan).
If references are entirely missing, you can add them using this form.