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Global ProductionFirms, Contracts, and Trade Structure$
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Pol Antràs

Print publication date: 2015

Print ISBN-13: 9780691168272

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691168272.001.0001

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Contracts and Global Sourcing

Contracts and Global Sourcing

(p.94) 4 Contracts and Global Sourcing
Global Production

Pol Antràs

Princeton University Press

This chapter analyzes the implications of weak contract enforcement for the international organization of production. With that goal in mind, the chapter starts by going back to the benchmark two-country model of global sourcing developed in Chapter 2, highlighting the contracting assumptions underlying the results of that model. It then introduces a model of contractual frictions that can shed light on the effect of contracting institutions on the intensive and extensive margins of intermediate input trade. Next, the chapter develops a series of extensions of the model that can open the door for model-based empirical tests of the effects of contracting considerations on the offshoring decisions of firms.

Keywords:   global sourcing, two-country model, contracting assumptions, contractual frictions, contracting institutions, model-based empirical tests, contracting considerations, offshoring decisions

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