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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 (2018) Come together: firm boundaries and delegation. CEP Discussion Papers (CEPDP1547). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

Little is known theoretically, and even less empirically, about the relationship between firm boundaries and the allocation of decision rights within firms. We develop a model in which firms choose which suppliers to integrate and whether to delegate decisions to integrated suppliers. We test the predictions of the model using a novel dataset that combines measures of vertical integration and delegation for a large set of firms from many countries and industries. In line with the model’s predictions, we obtain three main results: (i) integration and delegation co-vary positively; (ii) producers are more likely to integrate suppliers in input sectors with greater productivity variation (as the option value of integration is greater); and (iii) producers are more likely to integrate suppliers of more important inputs and to delegate decisions to them.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2018 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification: D - Microeconomics > D2 - Production and Organizations
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 27 Jun 2018 08:54
Last Modified: 15 Sep 2019 23:26
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/88698

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