A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing
Fredrik Andersson ()
No 2004:13, Working Papers from Lund University, Department of Economics
The make-or-buy decision is analyzed in a three-layer principal-management-agent model. There is a cost-saving/quality tradeoff in effort provision. The principal faces the choice between employing an in-house management and contracting with an independent management; the cost-saving incentives facing the management are weaker in the former case. Cost-saving incentives trickle-down to the agent, affecting the cost-saving/quality tradeoff. It is shown that: weak cost-saving incentives to the management promotes quality if it is hard enough to meaurse; a more severe quality-control problem between the principal and the management, as well as a higher valuation of quality, makes an in-house management more attractive.
Keywords: make-or-buy decision; multitask principal-agent problem; contracting out (search for similar items in EconPapers)
JEL-codes: D23 L22 L24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2004_013
Access Statistics for this paper
More papers in Working Papers from Lund University, Department of Economics Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by David Edgerton ().