International Trade and Organizations.

• Position: Bureau News - Panel Discussion

The NBER's Working Group on International Trade and Organizations met in Cambridge on April 24. This group, directed by Gordon Hanson of University of California, San Diego, studies how firms structure their operations in the global economy. Multinational enterprises have been at the forefront of globalization. These firms mediate trade flows between countries, are the source of much foreign investment, and are a principal conduit through which technology moves abroad. The ITO Working Group examines how trade policy, tax policy, and the legal environment in the United States and other countries affect where multinational enterprises locate their activities and how they design the contracts and ownership arrangements that govern international flows of trade, investment, and technology.

The following topics were discussed at the meeting:

Robert Gibbons, NBER and MIT, "Incentives, Control, and Relationships Within and Between Firms"

Stephen Lin and Catherine Thomas, Harvard University, "When Do Multinational Firms Outsource? Evidence from the Hotel Industry"

Giovanni Maggi, NBER and Princeton University, and Massimo Morelli, Ohio State University, "Self-Enforcing Voting in International Organizations"

Patrick Legros, ECARES, and Andrew F. Newman, University College London, "Managerial Firms, Vertical Integration, and Consumer Welfare"

Gibbons summarized two recent papers from organizational economics and then discussed how this work might apply to issues in international trade, including multinational enterprises, joint ventures and alliances, foreign direct investment, and international organizations. In the first paper, he defines and compares elemental versions of four theories of the firm. These theories are distilled from important contributions by Hart, Holmstrom, Klein, Williamson, and others. Although these contributions have been widely cited and much discussed, Gibbons had found it difficult to understand the commonalities, distinctions, and potential combinations of these seemingly familiar contributions. Therefore, he attempts to clarify these issues, in three steps: beginning with informal summaries of the theories, then turning to simple but formal statements of each elemental theory, and finally nesting the four elemental theories in an integrative framework. In the second paper, Gibbons and his co-authors explore how governance structures (defined as ex ante allocations of decision rights and payoff rights) affect the way that...