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Outsourcing, Contracts and Innovation Networks

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  • Ottaviano, Gianmarco
  • Naghavi, Alireza

Abstract

We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.

Suggested Citation

  • Ottaviano, Gianmarco & Naghavi, Alireza, 2006. "Outsourcing, Contracts and Innovation Networks," CEPR Discussion Papers 5681, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5681
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    References listed on IDEAS

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    15. repec:hrv:faseco:4784029 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Alireza Naghavi & Gianmarco I. P. Ottaviano, 2010. "Outsourcing, complementary innovations, and growth," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(4), pages 1009-1035, August.
    2. Alireza Naghavi & Gianmarco Ottaviano, 2009. "Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 629-653, December.
    3. Nuttapon Photchanaprasert, 2011. "Innovation and Production Offshoring: Implications on Welfare," Global COE Hi-Stat Discussion Paper Series gd10-185, Institute of Economic Research, Hitotsubashi University.
    4. Karantininis, Kostas & Sauer, Johannes & Furtan, William Hartley, 2010. "Innovation and integration in the agri-food industry," Food Policy, Elsevier, vol. 35(2), pages 112-120, April.

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    More about this item

    Keywords

    Innovation; Incomplete contracts; Outsourcing;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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