A growing number of empirical studies find a relationship between the outsourcing of activities and a long term loss of firm productivity growth. The paper addresses this outsourcing productivity paradox by examining the connection between total outsourcing and organisational innovation. We present a model of organisational innovation in which managers raise productive efficiency by identifying organisational architectures that more effectively integrate value-adding activities and administrative routines. As part of this process, managers can internally or externally source an activity. Simulations of the model show that large scale outsourcing restricts the scope for future organisational innovation, leading to lower productivity growth. The findings accord with the empirical data and provide a salutary warning for managers and policy-makers about the long term implications of total outsourcing.

-This paper advances a decision theoretical foundation for pricing scripts by means of a simple model of product differentiation implementing the undercut-proof equilibrium concept. We argue that while sociological factors play undoubtedly an important role, economic analysis can complement the insights from economic sociology on pricing in the primary art market. Our model analyzes the effects of the gallery's and the artist's reputation on the price the gallery charges. The results suggest that prices positively correlate with an artist's reputation and negatively correlate with a gallery's reputation. The model may therefore explain the results of recent empirical studies that have led to similar results.

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Abstract:This paper devises a simulation model that combines insights from the evolutionary perspective on the division of labor with ideas from the labor process literature. It characterizes technical change and the development of a near-decomposable production process as the outcome of technological search and of organizational problem solving, where the conflict between workers and firms over the organization of work plays a central role. It is argued that a near-decomposable organization of the production process also allows management to tighten its control over workers. Consequently, more extensive divisions of labor within a firm develop where the power of workers to oppose decisions by the management is low. In these scenarios the performance of firms is also highest. The model is used to interpret historical evidence about different development paths in technical change in the UK and the US at the beginning of the twentieth century.