Experience Benefits and Firm Organization

Ingela Alger, Ching-to Ma and Régis Renault

The B.E. Journal of Economic Analysis & Policy, 2012, vol. 12, issue 1, 35

Abstract: A principal needs a worker for the production of a good. The worker can be hired as an internal agent, or an external agent under a contract. These two organizational modes correspond to in-house production and outsourcing, respectively. In each case, the agent earns experience benefits: future monetary returns from managing production, reputation, and enjoyment. The principal would like to extract experience benefits, and can do so when production is outsourced. However, the external agent earns information rent from private information about production costs. The principal cannot fully extract experience benefits when production is in-house because the internal agent must be provided with a minimum income, although the principal has full information on production costs. Our theory proposes a new trade-off, one between information rent under outsourcing and experience rent under in-house production. The principal chooses outsourcing when experience benefits are high, but her organizational choice may be socially inefficient.

Keywords: theory of the firm; job experience rent; informational rent (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/1935-1682.2932 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Experience Benefits and Firm Organization (2012)
Working Paper: Experience Benefits and Firm Organization (2009)
Working Paper: Experience Benefits and Firm Organization
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejeap:v:12:y:2012:i:1:n:39

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejeap/html

DOI: 10.1515/1935-1682.2932

Access Statistics for this article

The B.E. Journal of Economic Analysis & Policy is currently edited by Hendrik Jürges and Sandra Ludwig

More articles in The B.E. Journal of Economic Analysis & Policy from De Gruyter
Bibliographic data for series maintained by Peter Golla ().