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Outsourcing, Contracts and Innovation Networks

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  • Naghavi, Alireza
  • Ottaviano, Gianmarco Ireo Paolo

Abstract

We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5681.

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Date of creation: May 2006
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Handle: RePEc:cpr:ceprdp:5681

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Keywords: incomplete contracts; innovation; outsourcing;

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References

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  1. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  2. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc.
  3. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Edwin Lai & Raymond Riezman & Ping Wang, 2009. "Outsourcing of innovation," Economic Theory, Springer, vol. 38(3), pages 485-515, March.
  5. Gianmarco Ottaviano, 1996. "Monopolistic Competition, Trade and Endogenous Spatial Fluctuations," Working Papers 240, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  7. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," Working Papers 148, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  8. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
  9. Gene Grossman & Elhanan Helpman, 2001. "Integration vs. Outsourcing in Industry Equilibrium," CESifo Working Paper Series 460, CESifo Group Munich.
  10. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
  11. Valeria Gattai, 2006. "From the Theory of the Firm to FDI and Internalisation: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 225-262, November.
  12. Marin, Dalia & Verdier, Thierry, 2003. "Globalization and the new enterprise," Munich Reprints in Economics 19256, University of Munich, Department of Economics.
  13. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  14. repec:hrv:faseco:4784029 is not listed on IDEAS
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Citations

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Cited by:
  1. Alireza Naghavi & Gianmarco I. P. Ottaviano, 2009. "Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring," Development Working Papers 282, Centro Studi Luca d\'Agliano, University of Milano.
  2. Naghavi, Alireza & Ottaviano, Gianmarco Ireo Paolo, 2006. "Outsourcing, Complementary Innovations and Growth," CEPR Discussion Papers 5925, C.E.P.R. Discussion Papers.
  3. Nuttapon Photchanaprasert, 2011. "Innovation and Production Offshoring: Implications on Welfare," Global COE Hi-Stat Discussion Paper Series gd10-185, Institute of Economic Research, Hitotsubashi University.

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