The paper attempts to find out the relationship between informal wage and innovative efforts of firms in the formal sector in countries such as India, where informal sector captures lion's share of total workforce. A firm employs both formal and informal workers to produce a good. In equilibrium...

We express a doubt on the conventional wisdom namely, of a positive relationship between wage and productivity, of a formal sector firm in a developing economy where the firm can either go for subcontracting to the informal sector to minimize wage cost along with apprehension of extra-legal cost...

While a large body of researches discusses the effects of international subcontracting on firm dynamics, the present work deals with the similar issues of a domestic firm who subcontracts to the informal sector in a typical developing world. Theoretically, we develop a model that if the formal...

We develop a monopolistically competitive model for a closed economy without contract incompleteness. We show that if superior technology is not allowed to be transferred, integration would be the best mode of organization given that the transaction cost of intermediate input is sufficiently...

This paper establishes a crucial link between international trade and local organization of production. By using the standard Heckscher-Ohlin-Samuelson model we show that international trade promotes fragmentation, entrepreneurship and outsourcing due to the capital cost effect and the scale...

We provide an analysis of enforcement policies in a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated strategies. We argue that firms which operate both in the formal and informal sectors do very little to increase TOTAL employment when faced...

This paper considers the effect of outsourcing on R&D of the contracting firm. We show that outsourcing increases (decreases) R&D investment in a declining (booming) industry. If outsourcing reduces potential R&D investment, it may also make the consumers worse off. We show that outsourcing...

Recent empirical evidences show negative relationship between outsourcing and profitability. This paper provides a theoretical explanation for this phenomenon. In an oligopoly model, we show that firms earn lower profits in the outsourcing equilibrium compared to the situation where neither firm...

This paper examines the impact of outsourcing of production on the volume and composition of home country’s research and development. We find that outsourcing decreases process R&D of the multinational firm in large markets when it only conducts process R&D (the substitution effect between...