Outsourcing, Public Input Provision and Policy Cooperation

Thomas Aronsson () and Erkki Koskela
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Thomas Aronsson: Umeå University

No 4662, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper concerns public input provision as an instrument for redistribution under international outsourcing by using a model-economy comprising two countries, North and South, where firms in the North may outsource part of their low-skilled labor intensive production to the South. We consider two interrelated issues: (i) the incentives for each country to modify the provision of public input goods in response to international outsourcing, and (ii) whether international outsourcing justifies policy cooperation. If the public input good is substitutable for (complementary with) outsourcing in terms of the production function faced by northern firms, then outsourcing contributes to increase (decrease) the public input provision in the North. For the South, the optimal policy response depends on the level of outsourcing. We also show how policy cooperation with respect to public input provision can be designed to increase the overall social welfare.

Keywords: outsourcing; redistribution; public input goods; asymmetric information (search for similar items in EconPapers)
JEL-codes: H21 H25 J31 J62 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-12
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Related works:
Working Paper: Outsourcing, Public Input Provision and Policy Cooperation (2009)
Working Paper: Outsourcing, Public Input Provision and Policy Cooperation (2009)
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