Outsourcing when Investments are Specific and Complementary

Alla Lileeva () and Johannes Van Biesebroeck

Working Papers from University of Toronto, Department of Economics

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.

Keywords: Property rights theory; complementarity; asset specificity; vertical integration (search for similar items in EconPapers)
JEL-codes: D23 L14 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2007-05-22
New Economics Papers: this item is included in nep-bec, nep-ipr and nep-pr~
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: OUTSOURCING WHEN INVESTMENTS ARE SPECIFIC AND INTERRELATED (2013)
Working Paper: Outsourcing when Investments are Specific and Complementary (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-287

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