Essays on organizational economics
OA Version
Citation
Abstract
This dissertation delves into organizational economics, focusing on the impact of market conditions and firm boundaries on long-term relationships. I apply both theoretical and empirical methods to understand how partners' options outside their relationships affect their incentives to maintain cooperation and the resulting market outcomes. The first two chapters present game-theoretical models to explore how outside options shape the nature, value, and dynamics of relationships. The third chapter provides evidence supporting the findings in the second chapter on the labor market consequences of firms' labor outsourcing choices. Overall, these studies offer novel insights into dynamic interactions in various markets. In the first chapter, I explore the effects of reducing market frictions on relationship dynamics. I develop a repeated-game model in which partners in bilateral relationships have the opportunity to leave each other and search for new partners in a frictional matching market. I find that optimal relationships transition from stationary to non-stationary as market frictions decrease. I also present an inverted U-shaped relationship between principals' post-matching values and matching probabilities. Moreover, welfare decreases when relationships are in the non-stationary zone. My findings offer empirical implications for understanding relationship dynamics in different markets and provide a simple method to evaluate the welfare effects of reducing market frictions. In the second chapter, Michael B. Wong and I develop a theory of the firm as a nexus of relational contracts to explain the existence and boundaries of specialized firms in frictionless matching markets. In our model, entrepreneurs choose whether to directly enter relational employment contracts with workers or outsource from intermediaries who employ workers. The optimal choice depends on the expected duration of business needs and the tightness of the labor market. The model not only generates realistic predictions regarding firm boundaries, but also explains worker-level evidence and recent macroeconomic trends. In the third chapter, Michael B. Wong and I further investigate the labor market implications of domestic labor outsourcing. Analyzing Brazilian administrative panel data, we observe a decrease in workers' wage levels and wage dispersion as a result of outsourcing. However, we find that outsourcing enhances job security for workers over the first years of their employment. These findings provide empirical confirmation of the rent-stripping and demand-smoothing effects of outsourcing on workers' job quality, as established in the second chapter.
Description
2023