Asymmetric Information and Global Sourcing

Shin Chen Huang and Chia-Hui Lu

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper aims to study the choice of offshoring modes made by multinationals in the presence of asymmetric information. We focus on two types of asymmetric information, namely hidden characteristics and hidden action. The former creates adverse selection problem, and the later leads to moral hazard problem, both of which incur non-trivial costs to multinationals. We show that different offshoring modes, including greenfield foreign direct investment, joint venture, and outsourcing, can serve as a means to overcome or mitigate the problem of information asymmetry. We study the conditions under which one particular type of offshore modes dominates the others. The model generates implications consistent with the patterns of the prevalence of various offshoring models over time, and across industries and countries.

Keywords: Asymmetric Information; Global Sourcing; Foreign Direct Investment; Joint Venture; Outsourcing (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-cta
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd09-067.pdf (application/pdf)

Related works:
Working Paper: Asymmetric Information and Global Sourcing (2009)
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:hst:ghsdps:gd09-067

Access Statistics for this paper

More papers in Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Tatsuji Makino ().