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A new dimension in global value chains: Control vs. delegation in input procurement

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  • Karabay, Bilgehan
Abstract
We study the optimal organizational structure of a firm in a sequential supply chain when investments are relationship specific and contracts are incomplete. The market structure for the final product is monopolistic competition. Production follows a preordered sequence and exhibits high complementarity between stages. There are three types of actors: upstream suppliers, downstream suppliers and final-good producers (firms). In designing their organizational structure, firms in each stage choose not only the ownership structure, i.e., vertical integration versus outsourcing, but also the input-procurement strategy, i.e., delegation versus control. The separation of asset ownership and input-procurement rights leads to a novel organizational mode, which we call ‘outsourcing with delegation.’ We determine the implications of this new organizational mode in firms’ global sourcing decisions.

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  • Karabay, Bilgehan, 2022. "A new dimension in global value chains: Control vs. delegation in input procurement," Journal of International Economics, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:inecon:v:137:y:2022:i:c:s0022199622000162
    DOI: 10.1016/j.jinteco.2022.103584
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    1. Jiajie Yu & Shuang Meng, 2023. "How Does Trade Openness Affect Output Growth? A Perspective from the Input Diversity," Sustainability, MDPI, vol. 15(11), pages 1-21, June.
    2. Yue, Youfu & Hou, Junjun & Zhang, Meichen & Ye, Jiabai, 2024. "Does the sticky relationships of global value chains help stabilize employment? Evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 632-651.

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    More about this item

    Keywords

    Sequential supply chain; Property rights; Incomplete contracts; Organizational choice; Delegation;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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