Trade Liberalization and Organizational Change

Andrew Newman, Patrick Legros and Paola Conconi

No WP2011-037, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: We embed a simple incomplete-contracts model of organization design in a standard two-country perfectly-competitive trade model to examine how the liberalization of product and factor markets affects the ownership structure of firms. In our model, managers decide whether or not to integrate their firms, trading off the pecuniary benefits of coordinating production decisions with the private benefits of operating in their preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits. Organizational choices also depend on the terms of trade in supplier markets, which affect the division of surplus between managers. We show that, even when firms do not relocate across countries, the price changes triggered by the liberalization of product markets can lead to changes in ownership structures within countries. The removal of barriers to factor mobility can also induce widespread restructuring, which can lead to increases in product prices (or declines in quality), hurting consumers worldwide.

Keywords: Theory of the Firm; Incomplete Contracts; Globalization (search for similar items in EconPapers)
JEL-codes: D23 F13 F23 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2011-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Trade liberalization and organizational change (2012)
Working Paper: Trade Liberalization and Organizational Change (2012)
Working Paper: Trade Liberalization and Organizational Change (2008)
Working Paper: Trade Liberalization and Organizational Change (2008)
Working Paper: Trade Liberalization and Organizational Change (2008)
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