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Make-or-buy decisions and the manipulability of performance measures

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Author

Summary, in English

Abstract in Undetermined
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).

Publishing year

2009

Language

English

Document type

Working paper

Publisher

Department of Economics, Lund University

Topic

  • Economics

Keywords

  • make-or-buy decision
  • manipulation
  • outsourcing

Status

Published