SFB 303 Discussion Paper No. A-552

Author: Ewerhart, Christian, and Michael Lorth
Title: On the role of authority in just-in-time purchasing agreements
Abstract: The paper analyzes buyer-supplier relationships where the supplier can hand over partial control over his firm to the buyer. We show that standard just-in-time purchasing agreements can yield optimal levels of investment in flexible production. If investments in flexibility are socially valuable then it is optimal for the supplier to give up control over the delivery schedule. In this case, schedules of higher volatiliy chosen by the buyer induce more efficient investment incentives on the part of the supplier. Consequently, the supplier rationally gives up partial control over his firm in order to reach an outcome which is preferred by both supplier and buyer.
Keywords: Just-in-time, authority, property rights
JEL-Classification-Number: L22
Creation-Date: First version: June 1997
URL: ../1997/a/bonnsfa552.pdf

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