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Outsourcing when Investments are Specific and Complementary

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  • Alla Lileeva
  • Johannes Van Biesebroeck

Abstract

Using the universe of large Canadian manufacturing firms in 1988 and 1996, we investigate to what extent firms' outsourcing decision can be explained by a simple property rights model. A novel aspect of the data is the availability of component level information on outputs as well as inputs which permits the construction of a very detailed measure of vertical integration. Moreover, we construct five different measures of technological intensity to proxy for investments that are likely to be specific to a buyer-seller relationship. Our main findings are that (i) greater specificity makes outsourcing less likely; (ii) complementarities between the investments of the buyer and the seller are also associated with less outsourcing; (iii) only when we focus on the range of transactions with low complementarities do we find support for several nuanced predictions of the property rights model.

Suggested Citation

  • Alla Lileeva & Johannes Van Biesebroeck, 2007. "Outsourcing when Investments are Specific and Complementary," Working Papers tecipa-287, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-287
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Van Biesebroeck, Johannes & Zhang, Lijun, 2014. "Interdependent product cycles for globally sourced intermediates," Journal of International Economics, Elsevier, vol. 94(1), pages 143-156.
    2. Luigi Benfratello & Tiziano Razzolini & Alessandro Sembenelli, 2009. "Does ICT Investment Spur or Hamper Offshoring? Empirical Evidence from Microdata," Working papers 05, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    3. Emanuel Ornelas & John L. Turner, 2012. "Protection and International Sourcing," Economic Journal, Royal Economic Society, vol. 122(559), pages 26-63, March.
    4. repec:tur:wpaper:5 is not listed on IDEAS
    5. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc.
    6. Дзагурова Наталия Борисовна & Невидомская Мария Александровна, 2015. "«Запаздывание» Специфических Инвестиций Как Временной Аналог Недоинвестирования," Journal of Institutional Studies Journal of Institutional Studies (Журнал институциональных исследований), CyberLeninka;Общество с ограниченной ответственностью «Гуманитарные перспективы», vol. 7(3), pages 76-91.
    7. Kalnins, Arturs & Lin, Stephen F. & Thomas, Catherine, 2018. "In-house and arm’s length: productivity heterogeneity and variation in organizational form," LSE Research Online Documents on Economics 91702, London School of Economics and Political Science, LSE Library.
    8. Holger Görg & Aoife Hanley & Ingrid Ott, 2015. "Outsourcing Foreign Services and the Internet: Evidence from Firm Level Data," The Economic and Social Review, Economic and Social Studies, vol. 46(3), pages 367-387.
    9. Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.

    More about this item

    Keywords

    Property rights theory; complementarity; asset specificity; vertical integration;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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