IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/3629.html
   My bibliography  Save this paper

Why is a Flexible World More Insecure? The Way Outsourcing Amplifies Uncertainty

Author

Listed:
  • Thesmar, David
  • Thoenig, Mathias

Abstract

This Paper presents a macroeconomic model where firms may endogenously outsource part of their production process. We start from the premise that adaptation to uncertainty cannot be contracted upon in the worker - employer relationship. Outsourcing decisions then balance flexibility gains against hold-up costs of opportunistic behaviour by outside contractors. In equilibrium, the degree of outsourcing is shown to depend on the degree of product market competition, contractor's bargaining power, and the volatility of demand shocks. Our main result is that an increase in the degree of outsourcing amplifies the volatility of firm sales and employment; it does not, however, amplify aggregate uncertainty. This theory is therefore a good candidate in explaining the rise in firm level uncertainty witnessed in the US over the past 30 years. It also provides valuable insights on the relation between globalization, technical change, firm level uncertainty and job instability. Finally, we bring our theory's implications to the test. Evidence from firm level data is shown to be largely consistent with the main implications of our theory.

Suggested Citation

  • Thesmar, David & Thoenig, Mathias, 2002. "Why is a Flexible World More Insecure? The Way Outsourcing Amplifies Uncertainty," CEPR Discussion Papers 3629, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3629
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3629
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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

    References listed on IDEAS

    as
    1. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    2. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
    3. Robert A. Jones & Joseph M. Ostroy, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 13-32.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Fred Robert-Nicoud (University of Geneva) & Niko Matouschek & Paolo Ramezzana (University of Virginia), 2004. "Labor Market Frictions, Job Insecurity and the Flexibility of the Employment Relationship," Econometric Society 2004 Australasian Meetings 52, Econometric Society.
    2. Niko Matouschek & Paolo Ramezzana, 2004. "Labor Market Frictions, Job Insecurity, and the Flexibility of the Employment Relationship," Econometric Society 2004 North American Summer Meetings 28, Econometric Society.

    More about this item

    Keywords

    flexibility; fragmentation; outsourcing; uncertainty;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cpr:ceprdp:3629. 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: (). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.