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Make-or-Buy Decisions and the Manipulability of Performance Measures

Publiceringsår: 2011
Språk: Engelska
Publikation/Tidskrift/Serie: The B.E. Journal of Theoretical Economics (Advances)
Volym: 11
Nummer: 1
Dokumenttyp: Artikel
Förlag: The Berkeley Electronic Press


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).



  • Business and Economics
  • make-or-buy decision
  • manipulation
  • outsourcing


  • ISSN: 1935-1704

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