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The Theories of International Outsourcing and Integration : A Theoretical Overview from the Perspective of Organizational Economics

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  • Hideshi Itoh

    (Hitotsubashi University)

Abstract

The purpose of this essay is to provide an overview of the theories of the vertical firm boundaries from a viewpoint of a theorist whose field of specialization is organizational economics. I offer several testable theoretical hypotheses (with a few relevant empirical studies in the fields outside international economics) hoping future research will test them in the context of international vertical relationships in East Asia, and provide theorists like me with new evidence and evaluations, both positive and negative. Such interaction is crucial for our further understanding of multinational firms strategies in East Asia. I first summarize two approaches to the boundaries of the firm, the transaction costs approach and the property rights approach. To differentiate from those recent survey papers by scholars of international trade which mostly focus on these approaches, I put more emphasis on alternative theories, since in the field of organizational economics, the property rights approach to the firm boundaries has been criticized and alternative theories have been developing.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 21891.

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Date of creation: Aug 2006
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Handle: RePEc:eab:microe:21891

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org
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  1. Jed DeVaro & Fidan Ana Kurtulus, 2010. "An An Empirical Analysis of Risk, Incentives and the Delegation of Worker Authority," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(4), pages 641-661, July.
  2. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
  3. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  4. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," NBER Working Papers 12091, National Bureau of Economic Research, Inc.
  5. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
  6. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
  7. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
  8. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
  9. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  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. Hideshi Itoh & Hodaka Morita, 2006. "Formal Contracts, Relational Contracts, and the Holdup Problem," CESifo Working Paper Series 1786, CESifo Group Munich.
  12. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  13. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  14. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
  15. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
  16. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  17. Shelanski, Howard A & Klein, Peter G, 1995. "Empirical Research in Transaction Cost Economics: A Review and Assessment," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 335-61, October.
  18. Michael D. Whinston, 2003. "On the Transaction Cost Determinants of Vertical Integration," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 1-23, April.
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Cited by:
  1. Kyoji Fukao & Toshihiro Okubo, 2011. "Why Has the Border Effect in the Japanese Machinery Sectors Declined? The Role of Business Networks in East Asian Machinery Trade," Global COE Hi-Stat Discussion Paper Series gd11-197, Institute of Economic Research, Hitotsubashi University.

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