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Law, social responsibility, and outsourcing

Author

Listed:
  • Fu, Qiang
  • Gong, Jie
  • Png, I.P.L.

Abstract

Previous research into law and corporate social responsibility mostly assumes that the vertical structure of production is exogenous. Here, we allow a brand to choose between vertical integration and outsourcing. With outsourcing, the brand avoids some liability and responsibility, but loses direct control over the producer’s infringement of law or code of conduct. Infringement increases with production, so the brand tailors production to guide the producer’s infringement. The elasticity of demand for the product affects the degree to which, under outsourcing, the brand will increase production to induce the producer to reduce cost through infringement. If the demand is sufficiently elastic relative to the social harm caused by infringement, the optimal policy is to reduce avoidance such that the brand chooses vertical integration. However, if the demand is sufficiently inelastic relative to the social harm, then the optimal policy is to increase avoidance such that the brand chooses outsourcing.

Suggested Citation

  • Fu, Qiang & Gong, Jie & Png, I.P.L., 2018. "Law, social responsibility, and outsourcing," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 114-146.
  • Handle: RePEc:eee:indorg:v:57:y:2018:i:c:p:114-146
    DOI: 10.1016/j.ijindorg.2018.01.002
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    References listed on IDEAS

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    Cited by:

    1. Adem Orsdemir & Bin Hu & Vinayak Deshpande, 2019. "Ensuring Corporate Social and Environmental Responsibility Through Vertical Integration and Horizontal Sourcing," Manufacturing & Service Operations Management, INFORMS, vol. 21(2), pages 417-434, April.
    2. Herkenhoff, Philipp & Krautheim, Sebastian, 2022. "The international organization of production in the regulatory void," Journal of International Economics, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    Law; Corporate social responsibility; Outsourcing; Vertical integration;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • F2 - International Economics - - International Factor Movements and International Business
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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