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Incomplete contracts and the internal organization of firms

Aghion, Philippe and Bloom, Nick and Van Reenen, John (2014) Incomplete contracts and the internal organization of firms. Journal of Law, Economics and Organization, 30 (1). i37-i63. ISSN 8756-6222

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Identification Number: 10.1093/jleo/ewt003


We survey the theoretical and empirical literature on decentralization within firms. We first discuss how the concept of incomplete contracts shapes our views about the organization of decision-making. We then overview the empirical evidence on the determinants of decentralization and on the effects of decentralization on firm performance. A number of factors highlighted in the theory are shown to be important in accounting for delegation, such as heterogeneity and congruence of preferences as proxied by trust. Empirically, competition, human capital, and IT also appear to foster decentralization. There are substantial gaps between theoretical and empirical work and we suggest avenues for future research in bridging this gap (JEL O31, O32, O33, F23).

Item Type: Article
Official URL:
Additional Information: © 2014 Oxford University Press
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HC Economic History and Conditions
Sets: Departments > Economics
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 23 Jun 2014 15:44
Last Modified: 13 Apr 2016 12:08
Funders: Economic and Social Research Council

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