Trust, Firm Organization and the Structure of Production

Federico Cingano and Paolo Pinotti

No 53, Working Papers from "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi

Abstract: Interpersonal trust favors the expansion of organizations by allowing the delegation of decisions and tasks among anonymous others or people that interact only infrequently. We document these facts for a representative survey of Italian manufacturing firms and use this source of data to construct an industry-specific measure of need-for-delegation in production. We then show that trust shapes comparative advantage, as high-trust regions and countries exhibit larger value added and export shares in delegation-intensive industries relative to other industries. Such effects are associated with an increase in average firm size, while the number of firms is not significantly affected. Larger average size reflects in turn a shift of the distribution away from the smallest firms, consistently with the idea that trust allows organizations to expand beyond the narrow circle of family members and close friends.

Keywords: Trust; delegation; firm size; comparative advantage (search for similar items in EconPapers)
Pages: 49 pages
Date: 2012-09
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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