Outsourcing when Investments are Specific and Complementary
Alla Lileeva () and
Johannes Van Biesebroeck ()
No 14477, NBER Working Papers from National Bureau of Economic Research, Inc
Using the universe of large Canadian manufacturing firms in 1988 and 1996, we investigate to what extent outsourcing decision can be explained by a simple property rights model. The unique availability of disaggregate information on outputs as well as inputs permits the construction of a very detailed measure of vertical integration. We also construct five different measures of technological intensity to proxy for investments that are likely to be specific to a buyer-seller relationship. A theoretical model that allows for varying degrees of investment specificity and for complementarities---an externality between buyer and supplier investments---guides the analysis. Our main findings are that (i) greater specificity makes outsourcing less likely; (ii) complementarities between the investments of the buyer and the seller are also associated with less outsourcing; (iii) property rights predictions on the link between investment intensities and optimal ownership are only supported for transactions with low complementarities. High specificity and a low risk of appropriation strengthen the predictions in the model and in the data.
JEL-codes: D23 L14 (search for similar items in EconPapers)
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Published as Alla Lileeva & Johannes Van Biesebroeck, 2013. "Outsourcing When Investments Are Specific And Interrelated," Journal of the European Economic Association, European Economic Association, vol. 11(4), pages 871-896, 08.
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Journal Article: OUTSOURCING WHEN INVESTMENTS ARE SPECIFIC AND INTERRELATED (2013)
Working Paper: Outsourcing when Investments are Specific and Complementary (2007)
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