Professor Sharon Novak

Visiting Professor of CIRJE (July 1 - December 31, 2003)
Kellogg School of Management, Northwestern University, USA

Downloadable Recent Papers:

• Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development
  (joint with Scott Stern, Kellogg School of Management
  
  Abstract: This paper examines complementarity among vertical integration decisions in automobile product development. Though most research assumes that contracting choices are independent of each other, contracting complementarity may arise when governance choices impact the equilibrium degree of coordination among agents. First, effective coordination may depend on the level of (non-contractible) effort on the part of each agent; contracting complementarity results if coordination efforts are interdependent and vertical integration facilitates a higher level of non-contractible effort. Second, effective coordination may require the disclosure of proprietary trade secrets, and the potential for expropriation through an external supply contract may induce complementarity among vertical integration choices. We provide evidence for complementarity in product development contracting by develping an instrumental variables estimator that distinguishes complementarity from unobserved firm-level factors determining contracting mode. While we interpret our findings cautiously, the results suggest that contracting complementarity may be important in contexts where coordination is important to achieve but difficult to monitor.