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Make-or-buy decisions and the manipulability of performance measures

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Author Info
Andersson, Fredrik () (Department of Economics, Lund University)
Abstract

The make-or-buy decision is analyzed in a simple framework combining contractual incompleteness with the existence of imperfect but contractible performance measures. Contractual incompleteness gives rise to two regimes, identified with make and buy. The performance measure on which comprehensive contracts can be written is imperfect in the sense of being subject to manipulation. The main result is that the impact – or "externality" – of manipulation on true performance is key; a positive (negative) such externality favors make (buy).

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File URL: http://www.nek.lu.se/publications/workpap/Papers/WP09_16.pdf
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Publisher Info
Paper provided by Lund University, Department of Economics in its series Working Papers with number 2009:16.

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Length: 38 pages
Date of creation: 04 Nov 2009
Date of revision: 20 Nov 2009
Handle: RePEc:hhs:lunewp:2009_016

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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/
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Related research
Keywords: make-or-buy decision; manipulation; outsourcing;

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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This page was last updated on 2009-12-2.

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