Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production

I survey the influence of Grossman and Hart's (1986. “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration,” 94 Journal of Political Economy 691–719.) seminal paper in the field of International Trade. I discuss the implementation of the theory in open-economy environments and its implications for the international organization of production and the structure of international trade flows. I also review empirical work suggestive of the empirical relevance of the property-rights theory. Along the way, I develop novel theoretical results and also outline some of the key limitations of existing contributions. (JEL D23, F10, F12, F14, F21, F23, L22, L23).