Outsourcing when Investments are Specific and Complementary / Alla Lileeva, Johannes Van Biesebroeck.

Format:

Book

Author/Creator:

Lileeva, Alla.

Contributor:

National Bureau of Economic Research.

Van Biesebroeck, Johannes.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14477.

NBER working paper series no. w14477

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

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.

Notes:

Print version record

November 2008.