Research Projects

Research Projects Results (1)


Law, Social Responsibility, and Outsourcing ( 2015 )

Assistant Professor Gong Jie
: Strategy and Policy
Previous research into law and corporate social responsibility mostly assumes that the vertical structure of production is exogenous. By outsourcing, a brand may avoid some liability and responsibility, but lose direct control over the evasive actions that cause harm. Here, we analyse the trade-off between avoidance of liability and control over evasion. (i) Evasive actions reduce production costs, and so, evasion increases with the speed/scale of production. Under outsourcing, the brand may depress speed/scale to induce less evasion. (ii) Maximising welfare requires comparing welfare under vertical integration and outsourcing, and so, is an inherently non-convex problem. (iii) If demand is elastic, the cost of production is high or enforcement is weak, then vertical integration is optimal. It discretely raises welfare by raising production speed/scale (increasing consumer benefit by more than production costs), and lowering evasion (reducing harm by more than it raises production costs).
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