Managerial incentives and the international organization of production

Gene M. Grossman, Elhanan Helpman*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

133 Scopus citations


We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment (FDI).

Original languageEnglish
Pages (from-to)237-262
Number of pages26
JournalJournal of International Economics
Issue number2
StatePublished - Jul 2004


FundersFunder number
National Science Foundation


    • Direct foreign investment
    • Intra-firm trade
    • Outsourcing
    • Theory of the firm


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