Why do firms do some activities “in house” and contract out others? British-American economist Ronald Coase gave a cogent explanation in a classic 1937 paper on the nature of the firm. Show host Gene Tunny explains to his colleague Tim Hughes how Coase’s insights (e.g. the concept of transaction costs) can be applied to understand the actions of an Australian construction firm Hutchinson’s deciding to employ people to do concrete formwork rather than relying on subcontractors. 

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What’s covered in EP181

• Episode topic: What determines what activities a business does in house? [0:06]
• What is formwork and why does it matter? [3:29]
• Hutchinson’s moves to bring formwork in house [8:54]
• When is it important to have an in-house workforce in your firm [14:42]
• Why you don’t always contract out [20:00]
• What’s done in house and what’s outsourced? [25:03]
• Gig economy platforms (e.g. UpWork) [33:02]
• A closer look at The nature of the firm by Ronald Coase [40:56]

Links relevant to the conversation

Courier-Mail article on Hutchinson’s decision to do its own formwork:

https://www.couriermail.com.au/business/citybeat/hard-labour-hutchies-plan-to-survive-building-crisis/news-story/e3b8acc34728e49cc04d0c4b88bafc8d

Ronald Coase’s classic article on the nature of the firm:

https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0335.1937.tb00002.x

American Express article on pros and cons of hiring versus outsourcing:

https://www.americanexpress.com/en-us/business/trends-and-insights/articles/pros-cons-hiring-house-vs-outsourcing/

Credits

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. 

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