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9_26_Notes - properties of that index(a it tends to...

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Econ 4730 F2008 (9/26/2008) Outsourcing can take the form of subcontracting, or production under joint venture, where the labor force of the host economy works with those from the home economy, as supervisors or advisors. One way or anther, it is likely ot be a process of learning from demonstration. Consider the simple case of producing a particular output from labor input. Suppose η is the number of product with acceptable quality, and ξ is the units of labor used, so that in the formula, η = g η , g represents the average product of labor, or labor productivity. This can be interpreted as an index of efficiency, subject to random variations, in real life. Chapter 4 of Wan (2004) introduces a theory of Van and Wan (Article 14 of Wan, 2006). This explains two
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Unformatted text preview: properties of that index: (a) it tends to increase with the length of observing a mentor at work, but (b) this tendency is subject to some upper-bound over time. These two properties in turn have the following implications: (i) Why it beyond licensing advanced technology, a developing economy often offers inducement to joint ventures from developed economies, so that its local inexperienced labor can gain proficiency, (ii) Usually such inducement lasts for some finite period of length (iii) Even when there is no effective monitoring, the developed country does not mind to allow its advanced practice being observed....
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