Experience benefits and firm organization

Alger, Ingela, Ching-to-Albert, Ma and Renault, Régis (2012) Experience benefits and firm organization. The B.E. Journal of Economic Analysis & Policy (Advances), vol. 12 (n° 1).

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Official URL: http://tse-fr.eu/pub/26838

Abstract

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.

Item Type: Article
Language: English
Date: September 2012
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:33
Last Modified: 29 Mar 2018 09:17
OAI ID: oai:tse-fr.eu:26838
URI: http://publications.ut-capitole.fr/id/eprint/15514

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