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INPUT QUALITY, RELATIONAL CONTRACTS AND INTERNATIONAL OUTSOURCING
Author(s) -
Bond Eric W.
Publication year - 2008
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2008.00409.x
Subject(s) - outsourcing , productivity , quality (philosophy) , production (economics) , verifiable secret sharing , economics , yield (engineering) , microeconomics , industrial organization , affect (linguistics) , comparative advantage , business , international trade , computer science , macroeconomics , marketing , set (abstract data type) , philosophy , linguistics , materials science , epistemology , metallurgy , programming language
. This paper presents a Ricardian trade model in which the quality of intermediate inputs affects the productivity of labour at the final production stage. The role of contracting frictions is shown by comparing the chain of comparative advantage obtained with full information with that resulting when the quality of inputs is affected by actions that are not verifiable in court. Conditions are derived under which parties can use the potential for repeat business (relational contracts) to sustain efficient production choices. These results yield predictions for how country and industry characteristics will affect the level of contracting frictions.