The Optimal Allocation of Ownership Right in Sequential Production Stage along the Global Value Chains

In this document, we have developed a model to analyze the optimal allocation of ownership right in sequential production stage along the global value chains. We have shown that, when the demand elasticity is low (high) relative to the degree of substitution among inputs in sequential production, and the bargaining weight of firm is low (high), integration (outsourcing) is the optimal organizational structure. And when both the demand elasticity is high (low) relative to the degree of substitution among inputs and the bargaining weight of firm is low(high), the firm will find it optimal to outsource(integrate) relatively upstream inputs, while to integrate(outsource) relatively the most downstream inputs.