Paper #428

Title:

Causes of subcontracting: Evidence from panel data on construction firms

Authors:

Manuel González, Benito Arruñada and Alberto Fernández

Date:

November 1999

Abstract:

This paper examines factors explaining subcontracting decisions in the construction industry. Rather than the more common cross-sectional analyses, we use panel data to evaluate the influence of all relevant variables. We design and use a new index of the closeness to small numbers situations to estimate the extent of hold-up problems. Results show that as specificity grows, firms tend to subcontract less. The opposite happens when output heterogeneity and the use of intangible assets and capabilities increase. Neither temporary shortage of capacity nor geographical dispersion of activities seem to affect the extent of subcontracting. Finally, proxies for uncertainty do not show any clear effect.

Keywords:

Intangible assets, monitoring costs, specificity, subcontracting, vertical integration, uncertainty

JEL codes:

L22, L14, L74

Area of Research:

Business Economics and Industrial Organization

Published in:

Journal of Economic Behavior and Organization, 42 (2), 2000, 167-187

Download the paper in PDF format