Preference Bias and Outsourcing to Market: A Steady-State Analysis
We analyze a model that focuses on the export/outsource decision. Outsourcing has the advantage of providing better information about local preferences. The disadvantage is that producing in the host country also means using the inferior technology embodied in the local capital. The decision of whether to offer an outsourcing contract weighs these two effects against each other. The host country accepts the outsourcing contract if the higher price they pay for the outsourced good is worth the benefit of consuming a manufactured good closer to their ideal variety. These results suggest that as low-income countries develop they become a more attractive destination for outsourcing because their capital grows to meet production needs and the local market is more lucrative. In addition, the developing low-income country finds the outsourcing contract more attractive since their increased demand for the correct variety of the manufactured good increases. This suggests that preference-based outsourcing is more likely to occur with higher-income host countries. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 17 (2009)
Issue (Month): SI (05)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576|
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0965-7576|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ghatak, Maitreesh & Pandey, Priyanka, 2000. "Contract choice in agriculture with joint moral hazard in effort and risk," Journal of Development Economics, Elsevier, vol. 63(2), pages 303-326, December.
- Patrick Bajari & Steven Tadelis, 1999.
"Incentives versus Transaction Costs: A Theory of Procurement Contracts,"
99029, Stanford University, Department of Economics.
- Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
- Spulber, Daniel F., 2008. "Innovation and international trade in technology," Journal of Economic Theory, Elsevier, vol. 138(1), pages 1-20, January.
- Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
- Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x.
- Chen, Been-Lon & Shimomura, Koji, 1998. "Self-Fulfilling Expectations and Economic Growth: A Model of Technology Adoption and Industrialization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 151-170, February.
- Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
- Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
When requesting a correction, please mention this item's handle: RePEc:bla:reviec:v:17:y:2009:i:si:p:338-356. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.