TY  - JOUR
AU  - Lileeva,Alla
AU  - Biesebroeck,Johannes Van
TI  - Outsourcing when Investments are Specific and Complementary
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14477
PY  - 2008
Y2  - November 2008
UR  - http://www.nber.org/papers/w14477
L1  - http://www.nber.org/papers/w14477.pdf
N1  - Author contact info:
Alla Lileeva
York University
Toronto, Canada
E-Mail: lileeva@dept.econ.yorku.ca

Johannes Van Biesebroeck
Centre for Economic Studies
K.U.Leuven
Naamsestraat 69
3000 Leuven
BELGIUM
Tel: +32 16 32 67 93
Fax: +32 16 32 67 96
E-Mail: jo.vanbiesebroeck@econ.kuleuven.be
AB  - Using the universe of large Canadian manufacturing firms in 1988 and 1996, we investigate to what extent outsourcing decision can be explained by a simple property rights model. The unique availability of disaggregate information on outputs as well as inputs permits the construction of a very detailed measure of vertical integration. We also construct five different measures of technological intensity to proxy for investments that are likely to be specific to a buyer-seller relationship. A theoretical model that allows for varying degrees of investment specificity and for complementarities---an externality between buyer and supplier investments---guides the analysis. Our main findings are that (i) greater specificity makes outsourcing less likely; (ii) complementarities between the investments of the buyer and the seller are also associated with less outsourcing; (iii) property rights predictions on the link between investment intensities and optimal ownership are only supported for transactions with low complementarities. High specificity and a low risk of appropriation strengthen the predictions in the model and in the data.
ER  -