Outsourcing when Investments are Specific and Complementary
Alla Lileeva () and
Johannes Van Biesebroeck ()
Working Papers from University of Toronto, Department of Economics
Using the universe of large Canadian manufacturing firms in 1988 and 1996, we investigate to what extent firms' outsourcing decision can be explained by a simple property rights model. A novel aspect of the data is the availability of component level information on outputs as well as inputs which permits the construction of a very detailed measure of vertical integration. Moreover, we construct five different measures of technological intensity to proxy for investments that are likely to be specific to a buyer-seller relationship. 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) only when we focus on the range of transactions with low complementarities do we find support for several nuanced predictions of the property rights model.
Keywords: Property rights theory; complementarity; asset specificity; vertical integration (search for similar items in EconPapers)
JEL-codes: L14 D23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ipr and nep-pr~
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Journal Article: OUTSOURCING WHEN INVESTMENTS ARE SPECIFIC AND INTERRELATED (2013)
Working Paper: Outsourcing when Investments are Specific and Complementary (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-287
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