{'fraction_non_alphanumeric': 0.019938650306748466, 'fraction_numerical': 0.0, 'mean_word_length': 5.658163265306122, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
Cost Economics : The incremental effects of intra-firm moral hazard and management control mechanisms on strategic outsourcing decisions

This study examines whether intra-firm moral hazard and control mechanisms, i.e., executives' risk-taking incentives and monitoring of managerial decision making, predict the extent of outsourcing after controlling for transaction costs and economies of scale and scope. Using data from aircraft maintenance outsourcing, a high-risk strategic decision in the airline industry, we document that transaction costs and economies of scale and scope significantly explain the extent of outsourcing. We also find that intra-firm moral hazard resulting from CEO risk aversion is negatively associated with the extent of outsourcing. By contrast, moral hazard in the form of workforce job design constraints is positively associated with outsourcing, suggesting that firms use outsourcing as a way of mitigating that moral hazard. Finally, we find that CEO risk incentives and monitoring intensity of CEO decisions are positively associated with outsourcing, indicating that firms employ these mechanisms to motivate managers' risk-taking behavior. This study offers evidence that transaction cost economics provides an incomplete picture of the determinants of outsourcing.