Complexity, Flexibility, and the Make-or-Buy Decision
The transaction cost of haggling and friction due to ex post changes and adaptations when contracts are in complete is examined. The level of a transaction's complexity, which is associated with contractual incompleteness, will be the shifting parameter that determines both incentive schemes an...
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| Veröffentlicht in: | The American economic review 2002-05, Vol.92 (2), p.433-437 |
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| container_title | The American economic review |
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| creator | Tadelis, Steven |
| description | The transaction cost of haggling and friction due to ex post changes and adaptations when contracts are in complete is examined. The level of a transaction's complexity, which is associated with contractual incompleteness, will be the shifting parameter that determines both incentive schemes and integration costs. The present paper is a first attempt to extend the insights from the Bajari and Tadelis model (Bajari and Tadelis 2001) to address specifically the make-or-buy decision. It is found that more complex products are more likely to be procured internally (make) and have the upstream unit face low incentives, while the more simple products are more likely to be procured through the market (buy) and have the upstream supplier face high incentives. |
| doi_str_mv | 10.1257/000282802320191750 |
| format | Article |
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| ispartof | The American economic review, 2002-05, Vol.92 (2), p.433-437 |
| issn | 0002-8282 1944-7981 |
| language | eng |
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| source | EBSCOhost Business Source Complete; Jstor Complete Legacy; American Economic Association Web |
| subjects | Bleeding time Buy or make decisions Capital costs Contract incentives Contract theory Contractual Theories of the Firm Cost efficiency Cost incentives Costs Economic models Economic theory Effects Firm theory Friction Incentive pay Incentives Incomplete contracts Organization theory Political economy Product design Studies Transaction costs Vertical integration |
| title | Complexity, Flexibility, and the Make-or-Buy Decision |
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