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Input Specificity and Global Sourcing

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  • Galina A. Schwartz
  • Ari Van Assche

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    Abstract

    This paper investigates the role of productivity on a firm’s organizational choice. We expand Antràs and Helpman (2004) by allowing heterogeneous firms to choose between adopting specific and generic inputs. In input-intensive industries, firms face a trade-off between the lower productivity of generic inputs and the reduced hold-up friction of generic outsourcing. We demonstrate that the hold-up friction under generic outsourcing increases with a firm’s productivity. This implies that: (i) high productivity firms choose ideal outsourcing to the South, (ii) medium productivity firms choose generic outsourcing to the South, (iii) low productivity firms choose generic outsourcing to the North. Cet article étudie le rôle de la productivité sur les choix organisationnels des entreprises. Nous élargissons l’étude d’Antràs et Helpman (2004) en permettant aux entreprises hétérogènes de choisir entre l’adoption d’intrants spécifiques ou génériques. Au sein des industries caractérisées par une forte utilisation d’intrants, les entreprises font face à un compromis entre une productivité réduite liée aux intrants génériques et un problème de hold-up moindre découlant de l’impartition générique. Nous démontrons que le problème de hold-up lié à l’impartition générique augmente selon la productivité d’une entreprise. Ce qui implique que : les entreprises dont le taux de productivité est élevé choisissent l’impartition optimale au Sud, (ii) les entreprises dont le taux de productivité est moyen choisissent l’impartition générique au Sud, (iii) les entreprises dont le taux de productivité est bas choisissent l’impartition générique au Nord.

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    Bibliographic Info

    Paper provided by CIRANO in its series CIRANO Working Papers with number 2006s-02.

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    Date of creation: 01 Feb 2006
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    Handle: RePEc:cir:cirwor:2006s-02

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    Keywords: input specificity; outsourcing; firm heterogeneity; incomplete contracts; hold-up problem; spécificité des intrants; impartition; hétérogénéité des entreprises; incomplétude des contrats; problèmes de hold-up.;

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    References

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    1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    2. repec:rus:hseeco:122439 is not listed on IDEAS
    3. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
    4. 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.
    5. Tomiura, Eiichi, 2005. "Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 255-271, June.
    6. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
    7. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
    8. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    9. 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.
    10. 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.
    11. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
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    Cited by:
    1. Van Assche, Ari, 2008. "Modularity and the organization of international production," Japan and the World Economy, Elsevier, vol. 20(3), pages 353-368, August.
    2. Ari Van Assche, 2006. "Modularity and the Organization of International Production," CIRANO Working Papers 2006s-09, CIRANO.

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