Foreign Market Entry under Incomplete Contracts

Tobias Seidel

No 3248, CESifo Working Paper Series from CESifo

Abstract: I show in this paper that incomplete contracts affect a firm’s decision about serving foreign customers through exports or local sales from an affiliated plant. When contracts between two agents within a firm are too costly to write, the share of multinational firms may be higher or lower compared to a world without contractual frictions. Incomplete contracts also provide a novel explanation for why horizontal multinational activity may increase when trade costs fall - a result that is at odds with the proximity-concentration trade-off.

Keywords: multinational firms; exports; incomplete contracts (search for similar items in EconPapers)
JEL-codes: F12 F15 F23 (search for similar items in EconPapers)
Date: 2010
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