AbstractThis paper analyses how a firm chooses between direct ownership and licensing or franchising contracts in supplying distant markets. When contracts are incomplete we show that this choice must balance the moral hazard associated with appointing external agents against that associated with employing internal managers. We show that licensing contracts are preferred when the outside agent has limited opportunities for changing product technology or if there are few spillover effects from the licensee's market to the licensor's home market. Internalization is preferred when the advantages of the 357254201rm are knowledge-based and when reputational effects are strong.
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Bibliographic InfoPaper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0013.
Date of creation: 2000
Date of revision:
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Other versions of this item:
- George Norman, 2009. "Internalization Revisited," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(1), pages 121-133, March.
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-30 (All new papers)
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