Working Paper: NBER ID: w12131
Authors: Johannes van Biesebroeck
Abstract: The number of different car and light truck models produced in North America has increased enormously over the last decades. The data suggests that producing this increased variety of vehicles is associated with a productivity penalty. We show that manufacturers can adopt complementary activities to reduce this penalty. Flexible technology, defined as the ability to assemble models derived from different "platforms" on the same assembly line, and bringing previously outsourced activities in-house are two such activities that we identify. Both are costly themselves, in terms of lower productivity, but they reduce the cost of producing greater variety. The results are robust to controlling for the endogeneity of the adoption decisions using activity-specific instruments, as proposed by Athey and Stern (2003).
Keywords: automobile production; productivity; model proliferation; flexible technology; insourcing
JEL Codes: L23; L11; L62; M11; C33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing the variety of models produced in a plant (L23) | Productivity penalty (D24) |
| Adopting flexible technology (O33) | Lower marginal labor requirements (J29) |
| Insourcing (O36) | Reduces productivity costs of producing more variety (D24) |
| Adopting flexible technology + Insourcing (O36) | Enhanced productivity (O49) |
| Direct effects of adopting flexible technology and insourcing (O36) | Productivity (O49) |