On the role of sunk costs and transaction costs in utsourcing decisions

In this paper we report the results of two experiments examining the influence of sunk historical investments for internal production on the outsourcing decision. Outsourcing activities to external companies in an important issue in today's competitive environment. Transaction cost economics offers a theoretical explanation taking into account future transaction and production costs. In this theoretical framework, asset specificity and uncertainly are the main explanatory variables for the choice between producing internally or outsourcing to suppliers. We study the additional influence of internal sunk costs on outsourcing. We conclude that, contrary to accounting norms and standard economic theory , sunk costs are an additional explanatory factor in the outsourcing decision.