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Managerial Incentives and the International Organization of Production

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Author Info
Gene M. Grossman (Princeton University)
Elhanan Helpman (Harvard University, Tel Aviv University, and CIAR)

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Abstract

We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment.

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Publisher Info
Paper provided by Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. in its series Working Papers with number 147.

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Date of creation: Dec 2002
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Handle: RePEc:pri:wwseco:147

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Related research
Keywords: outsourcing direct foreign investment theory of the firm intra-firm trade

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Find related papers by JEL classification:
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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  1. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
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  2. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99. [Downloadable!]
  3. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics. [Downloadable!]
    Other versions:
  4. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81. [Downloadable!]
  5. Chu-Chia S. Lin & Ivan P.L. Png, 2002. "Monitoring Costs and the Mode of International Investment," Industrial Organization 0207012, EconWPA. [Downloadable!]
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  6. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  9. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June. [Downloadable!] (restricted)
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  10. Horn, Henrik & Lang, Harald & Lundgren, Stefan, 1995. "Managerial effort incentives, X-inefficiency and international trade," European Economic Review, Elsevier, vol. 39(1), pages 117-138, January. [Downloadable!] (restricted)
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  11. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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