Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81364
Authors: 
Andersson, Fredrik
Year of Publication: 
2009
Series/Report no.: 
IFN Working Paper 784
Abstract: 
The make-or-buy decision is analyzed in a three-layer principal-management-agent model. There is a cost-saving/quality tradeoff in effort provision. The principal chooses between employing an in-house management and contracting with an independent management; the cost-saving incentives facing the management are, endogenously, weaker in the former case. Cost-saving incentives trickle down to the agent, affecting the cost-saving/quality trade-off. It is shown that weak cost-saving incentives to the management promote quality provision by the agent, and that a more severe quality-control problem between the principal and the management, as well as a higher valuation of quality, make an in-house management more attractive.
Subjects: 
Make-or-buy decision
Multitask principal-agent problem
Outsourcing
JEL: 
D23
L22
L24
Document Type: 
Working Paper

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