Outsourcing: Theoretical foundations and incentive theory

Abstract

In an environment where outsourcing is experiencing increasing expansion, this phenomenon draws the interest of numerous researchers. Consequently, a paradox exists in the literature on outsourcing due to differences in the theories applied by various studies. This phenomenon is rooted in numerous scientific theories, creating significant confusion in the literature. However, it is observed that during the evolution of outsourcing, the expectations of organizations and the factors driving outsourcing also change, consequently, the theoretical foundations change in parallel. This narrative review aims to present an in-depth review of the literature on outsourcing to better understand the phenomenon and comprehend it through the lens of certain pertinent, innovative, and complementary theories. Here, we will discuss the theory of incentives according to Jean-Jacques Laffont and Jean Tirole (1993), a theory newly applied in the field of outsourcing. This theory views outsourcing as a contract that best manages the interests of stakeholders by involving the most appropriate incentives such as cost, quality, and price.

Key words: Outsourcing, the theoretical foundations, the incentive theory, regulation.

JEL classification: H830

Paper type: Theoretical Research