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...

We develop a novel theory of mis-allocation within firms (rather than between firms) due to managers' empire building. We introduce an in- ternal capital market into a two-factor model of multi-segment firms. We show that more open markets impose discipline on competition for capital within...

In recent decades, a large and increasing number of leading firms in a diverse set of industries have faced allegations of ‘unethical' practices along their international value chains. In many cases this has triggered consumer boycotts and NGO campaigns, introducing a new link between upstream...

This paper develops a novel theory of capital mis-allocation within firms that stems from managers' empire building and informational frictions within the organization. Introducing an internal capital market into a two-factor model of multi-segment firms, we show that international competition...

This paper develops a novel theory of capital mis-allocation within firms that stems from managers’ empire building and informational frictions within the organization. Introducing an internal capital market into a two-factor model of multi-segment firms, we show that international competition...

Over the last decades, the internationalization of the value chain has allowed firms to exploit cross-country differences in environmental and labor regulation (and enforcement) in ways that have led to a large number of NGO campaigns and consumer boycotts criticizing "unethical" practices. How...

This paper introduces the theory of firm organization under moral hazard into an equilibrium model of international trade with heterogeneous talents and technologies. The model is able to explain how the allocation of power and the provision of financial incentives inside firms varies within and...

We investigate the trade-off between FDI and international outsourcing of interme-diate inputs by a producer of a final good. To this extent, we characterize an industry equilibrium where fixed sunk costs exist for the setting up of foreign subsidiaries and the latter are heterogeneous in...

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...