IDEAS home Printed from https://ideas.repec.org/a/ier/iecrev/v36y1995i2p341-63.html
   My bibliography  Save this article

Incomplete Contracts, Risk, and Ownership

Author

Listed:
  • Hanson, Gordon H

Abstract

This paper develops a model of ownership based on incomplete contracts, specific investments, and risk and tests the model using data on industrial subcontracting in Mexico. The choice of ownership structure involves a trade-off between minimizing holdup risk and spreading natural risk. Concentrating ownership under one party reduces her exposure to holdup but increases her exposure to environmental uncertainty. Using data on Mexican apparel subcontracting, the author finds evidence that supports the model: the share of production subcontracted is high in market segments where demand is highly variable and low in market segments where manufacturers make large relationship-specific investments. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Hanson, Gordon H, 1995. "Incomplete Contracts, Risk, and Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 341-363, May.
  • Handle: RePEc:ier:iecrev:v:36:y:1995:i:2:p:341-63
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0020-6598%28199505%2936%3A2%3C341%3AICRAO%3E2.0.CO%3B2-E&origin=bc
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lynne G. Zucker & Michael R. Darby, 1996. "Costly Information in Firm Transformation, Exit, or Persistent Failure," NBER Working Papers 5577, National Bureau of Economic Research, Inc.
    2. repec:ebl:ecbull:v:3:y:2002:i:2:p:1-7 is not listed on IDEAS
    3. Chu-Chia S. Lin & Ivan Png, 2003. "Monitoring costs and the mode of international investment," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 261-274, July.
    4. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    5. Valeria Gattai, 2006. "From the Theory of the Firm to FDI and Internalisation: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 225-262, November.
    6. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    7. Andrabi, Tahir & Ghatak, Maitreesh & Khwaja, Asim Ijaz, 2006. "Subcontractors for tractors: Theory and evidence on flexible specialization, supplier selection, and contracting," Journal of Development Economics, Elsevier, vol. 79(2), pages 273-302, April.
    8. Woodruff, Christopher, 2002. "Non-contractible investments and vertical integration in the Mexican footwear industry," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1197-1224, October.
    9. ConcepciĆ³n PeƱarrubia & Gonzalo Olcina, 2002. "Specific investments and coordination failures," Economics Bulletin, AccessEcon, vol. 3(2), pages 1-7.
    10. Jan A. Van Mieghem, 1999. "Coordinating Investment, Production, and Subcontracting," Management Science, INFORMS, vol. 45(7), pages 954-971, July.
    11. Kerschbamer, Rudolf & Maderner, Nina & Tournas, Yanni, 2002. "Idiosyncratic investments, outside opportunities and the boundaries of the firm," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1119-1141, October.
    12. Antinori, Camille M. & Rausser, Gordon C., 2000. "Vertical integration in Mexican community forestry," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7kd903jn, Department of Agricultural & Resource Economics, UC Berkeley.
    13. Philippe DULBECCO & Isabelle VAGNERON, 1998. "Competition, Co-operation and Subcontracting - Lessons from the Clothing Industry in Thailand," Working Papers 199827, CERDI.
    14. Amirah El-Haddad, 2023. "Political Patronage and Economic Opportunity: Vertical Integration in Egyptian Textiles and Clothing," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(5), pages 1224-1257, October.
    15. Michael Powell, 2015. "An Influence-Cost Model of Organizational Practices and Firm Boundaries," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(suppl_1), pages 104-142.
    16. Amirah El-Haddad, 2013. "Political Patronage and Economic Opportunity: The Case of Vertical Integration in the Egyptian Clothing Industry," Working Papers 797, Economic Research Forum, revised Nov 2013.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ier:iecrev:v:36:y:1995:i:2:p:341-63. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/deupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.