Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73417
Authors: 
Kukharskyy, Bohdan
Year of Publication: 
2012
Series/Report no.: 
BGPE Discussion Paper 128
Abstract: 
Do contractual institutions and a country’s level of trust interact in their impact on the international make-or-buy decision? By analyzing explicit and implicit contracting in a unified framework, I show that better formal contractibility may both facilitate and hinder relational contracting on a trust basis. If formal agreements crowd out first-best efficient relational contracts, firms’ profitability and consumers’ welfare decrease. In contrast, a higher level of trust unambiguously increases firm performance and a country’s attractiveness as an offshoring destination. I also show that improvements in the trust level are associated with largest reductions in intrafirm trade if formal contractibility is low. Lastly, this paper argues that models built on the simplifying assumption of ex ante lump-sum transfers between parties generally overestimate the prevalence of outsourcing vs. integration.
Subjects: 
International organization of production
institutional quality
relational contracting
interaction of explicit and implicit contracts
welfare
JEL: 
D02
D23
F14
L22
Document Type: 
Working Paper

Files in This Item:
File
Size
727.85 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.