Make-or-buy decisions and the manipulability of performance measures

Fredrik Andersson ()

No 2009:16, Working Papers from Lund University, Department of Economics

Abstract: The make-or-buy decision is analyzed in a simple framework combining contractual incompleteness with the existence of imperfect but contractible performance measures. Contractual incompleteness gives rise to two regimes, identified with make and buy. The performance measure on which comprehensive contracts can be written is imperfect in the sense of being subject to manipulation. The main result is that the impact – or "externality" – of manipulation on true performance is key; a positive (negative) such externality favors make (buy).

Keywords: make-or-buy decision; manipulation; outsourcing (search for similar items in EconPapers)
JEL-codes: D23 L22 L24 (search for similar items in EconPapers)
Date: 2009-11-04, Revised 2009-11-20
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Related works:
Journal Article: Make-or-Buy Decisions and the Manipulability of Performance Measures (2011)
Working Paper: Make-or-buy Decisions and the Manipulability of Performance Measures (2009)
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