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Sebastian Krautheim

University of Passau

Sebastian Krautheim is a Professor of International Economics at the University of Passau. His research interests are in international trade, global value chains, and social activism. He is principle investigator of a DFG-funded research project on “Global Production and its Watchdogs: Firms and NGOs in the Regulatory Void”. He holds a PhD in Economics from the European University Institute.
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publication
The International Organization of Production in the Regulatory Void

In recent decades, a large and increasing number of leading firms in a diverse set of industries have faced allegations of ‘unethical’ practices along their international value chains. In many cases this has triggered consumer boycotts and NGO campaigns, introducing a new link between upstream (un)ethical choices and downstream consumer demand. Does this feedback effect shape the international organization of production, as casual observation of NGO campaigns seems to suggest? In an explorative empirical investigation, we indeed find that - over and above the effects of established determinants of the integration vs outsourcing decision - high potential cost savings of ‘unethical’ production in an industry favor international outsourcing and most strongly so for sourcing from low-regulation countries. Motivated by these findings, we introduce a cost-saving ‘unethical’ technology, consumer boycotts, and advocacy NGOs into a standard property-rights model of the international organization of production. Contracts are incomplete, limiting a firm’s control over both investment and (un)ethical technology choices of integrated as well as independent suppliers. We identify the unethical outsourcing incentive as a novel determinant of the international organization of production. It implies that high potential cost savings from ‘unethical’ production incentivize keeping the supplier at arm’s length, rationalizing our empirical findings.

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publication
Offshoring with endogenous NGO activism

The process of globalization is characterized by an impressive growth of global value chains, as well as the proliferation of non-governmental organizations (NGOs) interacting with multinational firms. This paper presents a model of offshoring and NGO–firm interactions in which offshoring to a low-regulation country allows a monopolist to implement a “dirty” technology undesired by consumers. Consumers can reduce the incentive for dirty production by financing an NGO monitoring the firm. NGO emergence and offshoring can arise as joint and interacting outcomes. For a range of trade costs, NGO emergence allows firms to capture gains from globalization, which would otherwise be unattainable. Somewhat paradoxically, NGO emergence can be at the expense of consumers possibly leading to welfare losses through offshoring.

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publication
Wages and International Tax Competition

We introduce wage bargaining and private information into a model of profit shifting and tax competition between a large and a small country. Shifting profits to the small country not only reduces a firm's tax bill but also creates private information on profitability, altering the wage bargaining in favor of the firm. This additional shifting incentive makes the tax base of the large country more elastic and leads to higher outflows, lower wages, higher firm profits and lower equilibrium tax rates. Tax rates are no longer the only determinant of the direction and extent of profit shifting.

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