Title

Managerial Incentives and the International Organization of Production

Author(s)

Gene M. Grossman Gene Grossman (Princeton University)

Elhanan Helpman Elhanan Helpman (Harvard University, Tel Aviv University, and CIAR)

Abstract

We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment.

Creation Date

2002-12

Section URL ID

WWSEcon

Paper Number

dp220.pdf

URL

http://www.tau.ac.il/~helpman/Managerial%20Incentives.pdf

File Function

Jel

L22, F23, D23

Keyword(s)

outsourcing, direct foreign investment, theory of the firm, intra-firm trade

Suppress

false

Series

4