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Title: Managerial Incentives and the International Organization of Production

Author(s): Gene M. Grossman and Elhanan Helpman

Publication Date: February 2003

Keyword(s): direct foreign investment, outsourcing and theory of the firm

Programme Area(s): International Trade and Regional Economics

Abstract: We develop a model in which 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.

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Bibliographic Reference

Grossman, G and Helpman, E. 2003. 'Managerial Incentives and the International Organization of Production'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3737