Department of Economics
Mohlstrasse 36, 72074
University of Tuebingen
Institutional Affiliation: University of Tuebingen
NBER Working Papers and Publications
|May 2015||Culture and Global Sourcing|
with Yuriy Gorodnichenko, Gerard Roland: w21198
This paper develops a model of global sourcing with culturally dissimilar countries. Production of final goods requires the coordination of decisions between the headquarter of a multinational firm and managers of their component suppliers. Managers of both units are assumed to have strong beliefs about the right course of action and are reluctant to adjust their decisions. We characterize the optimal allocation of decision rights across firms when contracts are incomplete. Our theoretical model delivers two key predictions: the incentive of a firm to integrate (rather than outsource) its input supply is decreasing in the cultural distance between the home and the host country and decreasing in trade costs between the two countries. Combining data from the U.S. Census Bureau's Related Par...