Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251768 
Year of Publication: 
2022
Series/Report no.: 
Passauer Diskussionspapiere - Volkswirtschaftliche Reihe No. V-88-22
Publisher: 
Universität Passau, Wirtschaftswissenschaftliche Fakultät, Passau
Abstract: 
This paper presents a property rights model of the international organization of production, where heterogeneous headquarter firms source from suppliers in the Global South. Due to weak regulatory stringency in the Global South, suppliers can employ a cost-saving technology. Consumers, however, consider this technology as unethical and may therefore participate in a consumer boycott, if they consider a firm to be responsible for its supplier's conduct. The paper analyzes how the international organization of production and the choice of technology interact with each other as well as sectoral characteristics. It identifies three mechanisms that govern whether integration is preferred by high-productivity firms in a given sector: the Antràs mechanism (severity of underinvestment by headquarter vs. supplier), the unethical mechanism (cost savings vs. boycott risk) and the deniability mechanism (higher boycott risk under integration than under outsourcing). The equilibrium share of active firms who integrate in a sector increases with productivity dispersion and decreases in the sector's cost advantage of unethical production.
Subjects: 
international outsourcing
property rights theory
heterogeneousfirms
ethical production
consumer boycotts
NGOs
social activism
JEL: 
D23
F12
F23
F61
L11
L23
L31
O35
Document Type: 
Working Paper

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