Contracting within and across Organizations

AbstractWhich components should the final assembler of automobiles produce in-house and which components should it outsource to external suppliers? Should a real estate company hire internal sales representatives as employees, or should it contract with independent sales agents who work on commission? Should a high-technology firm have internal legal counsel, or should it contract with an external law firm? In many contexts, the designer faces the choice of contracting either within or across organizations. The aim of this chapter is to show how these contracting decisions and choices can be subjected to a comparative efficiency analysis. To this end, this chapter focuses explicitly on the costs of contracting.