Managerial incentives and the international organization of production

Gene M. Grossman, Elhanan Helpman

Research output: Contribution to journalArticlepeer-review

133 Scopus citations

Abstract

We develop a model in which the 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 (FDI).

Original languageEnglish (US)
Pages (from-to)237-262
Number of pages26
JournalJournal of International Economics
Volume63
Issue number2
DOIs
StatePublished - Jul 2004

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Direct foreign investment
  • Intra-firm trade
  • Outsourcing
  • Theory of the firm

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