Come together: firm boundaries and delegation

Alfaro, Laura, Bloom, Nick, Conconi, Paola, Fadinger, Harald, Legros, Patrick, Newman, Andrew F., Sadun, Raffaella and Van Reenen, John ORCID: 0000-0001-9153-2907 (2024) Come together: firm boundaries and delegation. Journal of the European Economic Association, 22 (1). 34 – 72. ISSN 1542-4766

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Abstract

We jointly study firm boundaries and the allocation of decision rights within them by confronting an incomplete-contracts model with data on vertical integration and delegation for thousands of firms around the world. Integration has an option value: it confers authority to delegate or centralize decision rights, depending on who can best solve problems that arise in the course of an uncertain production process. In line with the model’s predictions, we find that firms are more likely to integrate suppliers that produce more valuable inputs and operate in industries with more dispersed productivity, and that firms delegate more decisions to integrated suppliers that produce more valuable inputs and operate in more productive industries.

Item Type:	Article
Official URL:	https://academic.oup.com/jeea
Additional Information:	© 2023 The Author(s)
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D20 - General L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General
Date Deposited:	11 Jul 2023 15:18
Last Modified:	28 Feb 2024 11:21
URI:	http://eprints.lse.ac.uk/id/eprint/119709

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