The empirical literature on the determinants of firms’ boundaries examines relationships between firms’ boundaries and asset specificity, especially how relationship-specific investments create ‘hold-up’ problems that increase the costs of competitive contracting; relationships between firms’ boundaries and the contracting environment, reflecting the role of incomplete contracting in the theoretical literature and the extent to which firms subcontract downstream stages rather than input procurement; and how firms’ boundaries vary with ‘job design’. This literature has established that asset specificity is empirically relevant for understanding integration decisions, and that relationships between subcontracting decisions, the contracting environment, and the division of labour are subtle.
Agency costs Asset specificity Coase, R. Contracting Division of labour Firm boundaries Hold-up problem Incomplete contracts Outsourcing Vertical integration
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