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General Distorted Input Ratios in Vertical Relationships

Martin Peitz and Dongsoo Shin ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: A project leader sources an input from a supporter and combines it with an input produced in-house. The leader has private information about the project’s cost environment. We show that if the leader can commit to the in-house input level, the input ratio is distorted upward when the in-house input is not too costly—the in-house input is produced in excess and, thus, partly wasted. By contrast, without the leader’s commitment to the in-house input level, the input ratio is distorted downward when the in-house input is su¢ciently costly—the outsourced input is produced in excess and, thus, partly wasted

Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel (search for similar items in EconPapers)
JEL-codes: E21 E24 J21 J22 (search for similar items in EconPapers)
Pages: 28
Date: 2018-12
New Economics Papers: this item is included in nep-mac and nep-mic
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