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Essay / Research Paper Abstract
This 5 page paper looks at the practice of outsourcing considering the way this can be explained and examined using Coase's theories including considering of transaction costs and economies of scope and scale. The bibliography cites 5 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEoutcoase.rtf
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Unformatted sample text from the term paper:
costs. Outsourcing is generally seen as a modern concept, facilitated by globalization and the development of supportive technology, but it is possible to argue that the foundations of outsourcing had
been in existence in mainstream business economics for much longer. One area which indicates the reasoning and motivation underling the potential of outsourcing in the way in which it should
be determined is seen in Coases argument concerning the nature of the firm. Coase proposed a fundamentally new view of the firm, arguing that according to neoclassical price theory there
was no reason for the firm to exist. However, as firms to exist Coase theorized that there would have to be a "cost to using the price mechanism" (Coase, 1937;
390). Within the market exchange is some inherent costs, for example the cost of negotiating and enforcing contracts and of research to discover prices etc (Coarse, 1937). Inside the firm
these can be seen as transaction costs, and entrepreneur may be able to reduce these costs by managing the activities (Coase, 1937). The internal organization creates other types of transaction
costs for a firm, such as incentives, monitoring, information flow and performance evaluation (Coase, 1937). Therefore, the determination of the firms boundary is made by looking at the trade-off and
the margin between the relative transaction costs impacting on the external and internal exchange (Coase, 1937). This can be seen as the basic economic theory of a firm, accounting for
the different types of costs, governance structures and decisions regarding where or when as such should occur. The theory is of Coase may be relatively old, and theories have developed
these hypotheses further, but the basic structure remains. It is also interesting to note the use of the term entrepreneur by Coase, but when applying this in the modern context
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