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Experience Benefits and Firm Organization

Renault, Régis; Ma, Ching-to Albert; Alger, Ingela (2012), Experience Benefits and Firm Organization, The B.E. Journal of Economic Analysis & Policy, 12, 1, p. non renseignées. http://dx.doi.org/10.1515/1935-1682.2932

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surplus_final.pdf (439.2Kb)
Type
Article accepté pour publication ou publié
Date
2012-01
Journal name
The B.E. Journal of Economic Analysis & Policy
Volume
12
Number
1
Publisher
Berkeley Electronic Press
Pages
non renseignées
Publication identifier
http://dx.doi.org/10.1515/1935-1682.2932
Metadata
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Author(s)
Renault, Régis
Ma, Ching-to Albert
Alger, Ingela cc
Abstract (EN)
A principal needs a worker for the production of a good. The worker can be hired as an internal agent, or an external agent under a contract. These two organizational modes correspond to in-house production and outsourcing, respectively. In each case, the agent earns experience benefits: future monetary returns from managing production, reputation, and enjoyment. The principal would like to extract experience benefits, and can do so when production is outsourced. However, the external agent earns information rent from private information about production costs. The principal cannot fully extract experience benefits when production is in-house because the internal agent must be provided with a minimum income, although the principal has full information on production costs. Our theory proposes a new trade-off, one between information rent under outsourcing and experience rent under in-house production. The principal chooses outsourcing when experience benefits are high, but her organizational choice may be socially inefficient.
Subjects / Keywords
Theory of the firm; Vertical integration; experience rents; informational rents; Cost; Information; Organization
JEL
J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
J23 - Labor Demand
D82 - Asymmetric and Private Information; Mechanism Design
D23 - Organizational Behavior; Transaction Costs; Property Rights

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