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Title:Efficient organization of production: Nested versus horizontal outsourcing PDF Logo
Authors:Shy, Oz
Stenbacka, Rune
Issue Date:2009
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 09-9
Abstract:The authors characterize equilibrium and efficient modes of production by comparing nested (vertical) outsourcing with horizontal outsourcing. Nested outsourcing is found to be inefficient unless the cost of monitoring outsourced production lines increases sharply with the number of subcontractors and not only with the number of outsourced components. They characterize a market failure in which nested outsourcing is selected when the case dictates that horizontal outsourcing is the efficient outsourcing mode. This failure occurs at an intermediate range of the costs of monitoring outsourcing to several subcontractors.
Subjects:outsourcing
subcontracting
nested outsourcing
horizontal outsourcing
efficient organization of outsourcing
JEL:D2
L2
L24
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

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