On the optimality of outsourcing when vertical integration can mitigate information asymmetries

Patrick Schmitz

Economics Letters, 2021, vol. 202, issue C

Abstract: Consider a buyer and a seller who have agreed to trade an intermediate good. It is ex-post efficient to adapt the good to the prevailing state of the world. The seller has private information about the costs of adapting the good. In the case of non-integration, the buyer has no possibility to verify claims that the seller makes about her costs. In the case of vertical integration, the buyer can verify evidence about the costs that the seller might be able to provide. Even though we assume no further differences between the ownership structures, it turns out that the parties may prefer non-integration.

Keywords: Incomplete contracts; Make-or-buy decision; Property rights approach; Private information; Outsourcing (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 L24 M11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176521001002
Full text for ScienceDirect subscribers only

Related works:
Working Paper: On the Optimality of Outsourcing when Vertical Integration can Mitigate Information Asymmetries (2021)
Working Paper: On the Optimality of Outsourcing when Vertical Integration can Mitigate Information Asymmetries (2021)
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:eee:ecolet:v:202:y:2021:i:c:s0165176521001002

DOI: 10.1016/j.econlet.2021.109823

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().