Make-or-buy decisions and the manipulability of performance measures
Författare
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).
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).
Avdelning/ar
Publiceringsår
2009
Språk
Engelska
Fulltext
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Länkar
Dokumenttyp
Working paper
Förlag
Department of Economics, Lund University
Ämne
- Economics
Nyckelord
- make-or-buy decision
- manipulation
- outsourcing
Status
Published