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Outsourcing, information leakage, and consulting firms

Author

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  • Mariagiovanna Baccara

    (New York University)

Abstract

I analyze the R&D investment of firms that decide between outsourcing and in-house production when information leakage is present (contractors learn clients' technology and can diffuse it to competitors)in a general equilibrium model. Information leakage tends to concentrate the outsourcing market: despite the fact that the original market is competitive, when a market for information arises, it is monopolistic. If contractors do not have control of the information, the market splits into a set of high-tech firms that never outsource and a set of low-tech firms that always outsource. The equilibrium structure captures several features observable in the management consulting industry.

Suggested Citation

  • Mariagiovanna Baccara, 2007. "Outsourcing, information leakage, and consulting firms," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 260-289, March.
    • Handle: RePEc:bla:randje:v:38:y:2007:i:1:p:260-289
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    Citations

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    Cited by:

    1. Luigi Benfratello & Tiziano Razzolini & Alessandro Sembenelli, 2009. "Does ICT Investment Spur or Hamper Offshoring? Empirical Evidence from Microdata," Working papers 05, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    2. Kummer, Michael & Schulte, Patrick, 2014. "Money and privacy: Android market evidence," ZEW Discussion Papers 14-131, ZEW - Leibniz Centre for European Economic Research.
    3. Giacomo A. M. Ponzetto, 2008. "Intellectual property rights and efficient firm organization," Economics Working Papers 1254, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2014.
    4. Williams, Christopher & Durst, Susanne, 2019. "Exploring the transition phase in offshore outsourcing: Decision making amidst knowledge at risk," Journal of Business Research, Elsevier, vol. 103(C), pages 460-471.
    5. Amiya K. Chakravarty, 2021. "The outsourcing conundrum: Misappropriation of intellectual property in supply chains," Naval Research Logistics (NRL), John Wiley & Sons, vol. 68(2), pages 229-240, March.
    6. Che, XiaoGang & Yang, Yibai & Zhang, Haoyu, 2010. "Outsourcing and R&D Investment with Costly Patent Protection," MPRA Paper 25516, University Library of Munich, Germany.
    7. Kim Hua Tan & W. P. Wong & Leanne Chung, 2016. "Information and Knowledge Leakage in Supply Chain," Information Systems Frontiers, Springer, vol. 18(3), pages 621-638, June.
    8. John Asker & Alexander Ljungqvist, 2010. "Competition and the Structure of Vertical Relationships in Capital Markets," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 599-647, June.
    9. Ramon Casadesus-Masanell & Andres Hervas-Drane, 2015. "Competing with Privacy," Management Science, INFORMS, vol. 61(1), pages 229-246, January.
    10. Werner Bönte & Lars Wiethaus, 2007. "Knowledge Disclosure and Transmission in Buyer–Supplier Relationships," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(4), pages 275-288, December.
    11. Emmanuel Dechenaux & Shakun D. Mago, 2023. "Contests with revisions," Experimental Economics, Springer;Economic Science Association, vol. 26(4), pages 915-954, September.
    12. repec:tur:wpaper:5 is not listed on IDEAS
    13. Shirley J. , HO, 2007. "R&D Outsourcing Contract with Information Leakage," Discussion Papers (ECON - Département des Sciences Economiques) 2007026, Université catholique de Louvain, Département des Sciences Economiques.
    14. Ng, Travis, 2013. "Information acquisition and institutions: An organizational perspective," Information Economics and Policy, Elsevier, vol. 25(4), pages 301-311.
    15. Buss, Philipp & Peukert, Christian, 2015. "R&D outsourcing and intellectual property infringement," Research Policy, Elsevier, vol. 44(4), pages 977-989.
    16. Bernales, Alejandro & Beuermann, Diether W. & Cumming, Douglas & Olid, Christian, 2023. "Blue-Collar Crime and Finance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    17. Carbo-Valverde, Santiago & Rodriguez-Fernandez, Francisco & Saunders, Anthony, 2021. "Underwriting bank bonds: Information sharing, certification and distribution networks," Journal of Corporate Finance, Elsevier, vol. 70(C).

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