International Organization Of Production And Bargaining Mechanism For Surplus

The dissertation deals with the organization of international production and the relative distribution of surplus, particularly analyzes international production networks (IPNs) with intra-product specialization that are formed by multinational firms' foreign direct investment (FDI) and contract production in developing nations. The study is based on new trade theory, incomplete contracting and Nash bargaining game. Three specific topics about IPNs are discussed, which are spatial organization, control structure and bargaining for surplus.Firstly, the paper presents a model of FDI with heterogeneous firms to analyze the formation of horizontal FDI and vertical FDI. In this model, a multinational firm with specific productivity chooses the degrees of intra-product specialization as well as the spatial organization of production. It shows that the development process of IPNs is consistence with the transformation of the south's advantages. When trade costs and investment costs decrease, and the south's market share increases, the south's advantage on factor costs shifts to advantage on production costs and advantage of international specialization. Meanwhile the horizontal IPNs with partial specialization shift to vertical IPNs with complete specialization.According to Grossman-Hart-Moore framework of imperfect contracts, the paper then develops a simple model of general contracting with institutional quality from zero to one. In doing so, the paper analyzes the evolutionary process from trade to FDI and outsourcing on the level of contracts. In this model, the international intra-product specialization is governed by incomplete contracting. A firm chooses trade and international production (FDI and outsourcing) by comparing production costs with transaction efficiency. The research shows that the optimal mode of international production is jointly determined by institutional quality, technology and endowments. Greater contractual incompleteness (lower institutional quality) makes the allocation of residual rights much important. FDI being relatively technology-intensive is dependent on institution, while outsourcing being relatively labor-intensive is sensitive to production costs. An improvement in contracting environment in the south leads more international production (especially FDI) and higher technology level of production. The relative technological progress in the south induces international intra-product specialization and international production transferring, and makes FDI shift to outsourcing. Finally, the paper extends the general contracts framework to parameterize the key variables that affect the distribution of surplus of international production. In doing so, the paper analyzes the mechanism of unbalanced distribution of surplus in the aspects of sharing rules and bargaining powers within Nash bargaining framework. The results show that on the condition of incomplete contracting, the Multinational firm with unilateral decision rights tends to expropriate local firm's deserved gains whether among equity or contract connected production networks. The rational distribution relation is only formed with co-sharing rules. The host nation can choose the sharing rules in the condition of FDI, while the sharing rule is determined by relative capacities of firms in the condition of contract production. Further more, the paper discuses the possible adjustments of host nation's FDI policy and local firms' feasible strategies of capacity building.Those models are integrated within the general contracts framework, for the model of spatial structure (model of FDI) is of complete contracts with institution quality being one, while the model of control structure being symmetric incomplete contracting and the models of bargaining for surplus being asymmetric incomplete contracting. The dissertation highlights the crucial roles of host nation's market scale and institutional environment on international production, underlines the close relation between organizational modes and surplus distribution. The research provides a tractable framework for the analysis of bilateral bargaining between multinational enterprise and local firms in IPNs.