Make-or-Buy Decisions and the Manipulability of Performance Measures
Author
Summary, in English
The make-or-buy decision is analyzed in a simple framework combining contractual incompleteness with the existence of an imperfect but contractible performance measure. Contractual incompleteness gives rise to two regimes, identified with make and buy. The performance measure on which comprehensive contracts can be written is imperfect in the sense of being subject to manipulation. The performance incentives faced by the agent are stronger in the “buy” regime. A positive (negative) impact – or ”externality” – of manipulation on true performance favors make (buy).
Department/s
Publishing year
2011
Language
English
Publication/Series
Journal of Theoretical Economics
Volume
11
Issue
1
Links
Document type
Journal article
Publisher
Berkeley Electronic Press
Topic
- Economics
Keywords
- make-or-buy decision
- manipulation
- outsourcing
Status
Published
ISBN/ISSN/Other
- ISSN: 1935-1704