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| Author: | Thesmar, D. Thoenig, M. |
| Title: | From flexibility to insecurity: how vertical separation amplifies firm-level uncertainty |
| Journal: | Journal of the European Economic Association
2007 : DEC, VOL. 5:6, p. 1161-1202 |
| Index terms: | outsourcing uncertainty |
| Language: | eng |
| Abstract: | A model, where companies may endogenously externalize part of their production process, is presented. The study starts from the premise that adaptation to uncertainty cannot be contracted upon in the worker/employer relationship. Vertical separation then balances flexibility gains against hold-up costs of opportunistic behaviour by outside contractors. In equilibrium, the degree of separation is shown to depend on the degree of product market competition, contractor's bargaining power, and the volatility of demand shocks. The main finding is that an increase in the degree of vertical separation amplifies the elasticity to demand shocks of companies' sales and employment. |
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