1. University of Texas, McCombs School of Business, Austin, Texas 78712, USA
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      Dr. Anderson is an Assistant Professor of Operations Management at the University of Texas McCombs School of Business. He received his doctorate from the Massachusetts Institute of Technology and his bachelor's degree in electrical engineering and history from Stanford University. His research interests include supply chain management (especially service supply chains), outsourced product development, knowledge management, and system dynamics. He has published articles in such journals as Management Science, Production and Operations Management, and The Systems Thinker. Dr. Anderson won the prestigious Wickham Skinner Early-Career Research Award from the Production and Operations Management Society. He sits on the editorial review board of Production and Operations Management and has received research grants from SAP and Hewlett-Packard. Professor Anderson has consulted with Ford, Dell, Hewlett-Packard, Frito-Lay, and Atlantic-Richfield. Prior to his academic work, he was a product design engineer at the Ford Motor Company, from which he was granted three U.S. patents.


    1. Tulane University, A.B. Freeman School of Business, New Orleans, Louisiana 70118, USA
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      Dr. Parker is an Assistant Professor of Management at the A.B. Freeman School of Business at Tulane University. Parker's primary research interests are in the areas of learning, integration, and supply chain design. Parker has additional research interests in network and information economics. Parker's recent projects include a case study of supply chain integration practices in the electronics industry, an exploration of why firms choose to give away information products, and an examination of the interaction between product design and supply chain design in learning and competitive settings. Parker received a B.S. in Electrical Engineering and Computer Science from Princeton University, and an M.S. in Electrical Engineering (Technology and Policy Program) and a Ph.D. in Management Science from the Massachusetts Institute of Technology. Prior to graduate school, Parker held positions in engineering, finance, and business development at the General Electric Company.


By including the effects of learning over time on both the production of components and their integration into complete products, we develop an engineering-based model of outsourcing. This model provides an alternative explanation for much of what other outsourcing theories predict, as well as making several new predictions. In particular, we show that outsourcing decisions can create a path-dependent outsourcing trap in which a firm experiences higher long-run costs after an immediate cost benefit. We also describe conditions under which outsourcing a small fraction of component production may dominate either complete insourcing or complete outsourcing. Finally, we show that, with discounting, there is a convex, curvilinear relationship between the optimal outsourcing fraction and the rate of technological change.