Come together: firm boundaries and delegation
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Published version
Date
2024-02-09
Authors
Alfaro, Laura
Bloom, Nick
Conconi, Paola
Fadinger, Harald
Legros, Patrick
Newman, Andrew F.
Sadun, Raffaella
Van Reenen, John
Version
Published version
OA Version
Citation
L. Alfaro, N. Bloom, P. Conconi, H. Fadinger, P. Legros, A.F. Newman, R. Sadun, J. Van Reenen. 2024. "Come Together: Firm Boundaries and Delegation" Journal of the European Economic Association, Volume 22, Issue 1, pp.34-72. https://doi.org/10.1093/jeea/jvad027
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.
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License
Copyright The Author(s) 2023. Published by Oxford University Press on behalf of European Economic Association. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.