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Managerial Incentives and the International Organization of Production

Author

Listed:
  • Gene M. Grossman

    (Princeton University)

  • Elhanan Helpman

    (Harvard University, Tel Aviv University, and CIAR)

Abstract

We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment.

Suggested Citation

  • Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, School of Public and International Affairs, Discussion Papers in Economics.
    • Handle: RePEc:pri:wwseco:dp220.pdf
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    File URL: http://www.tau.ac.il/~helpman/Managerial%20Incentives.pdf
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    Keywords

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    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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