Outsourcing, Product Quality and Contract Enforcement
24 Pages Posted: 30 Oct 2009
Date Written: August 1, 2009
Does outsourcing compromise product quality? Does sound contract enforcement alleviate this concern? Using data from a survey of firms in China conducted by the World Bank, we confirm that outsourcing does compromise product quality, but the negative impact of outsourcing on product quality is mitigated by the effectiveness of contract enforcement. We offer a simple model to illustrate how outsourcing leads to lower product quality and how contract enforcement helps alleviate this problem.
Keywords: Outsourcing, Product Quality, Contract Enforcement
JEL Classification: D23, L23, L15, K
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