Working Paper No. 815

Make-or-buy Decisions and the Manipulability of Performance Measures

Published: December 3, 2009Pages: 38Keywords: Make-or-buy decision; Manipulation; OutsourcingJEL-codes: D23; L22; L24

Make-or-buy Decisions and the Manipulability of Performance Measures Fredrik Andersson


The make-or-buy decision is analyzed in a simple framework combining contractual incompleteness with the existence of imperfect but contractible performance measures. Contractual incompleteness gives rise to two regimes, identified with make and buy. The performance measure on which comprehensive contracts can be written is imperfect in the sense of being subject to manipulation. The main result is that the impact – or "externality" – of manipulation on true performance is key; a positive (negative) such externality favors make (buy).
 

Fredrik Andersson

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Andreas Bergh, IFN and Lund University, is one of the authors of this book. The Timbro Sharing Economy Index is the first global index of the sharing economy. The index has been compiled using traffic volume data and scraped data, and provides a unique insight into the driving factors behind the peer-to-peer economy.

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