Vertical Integration and Distance to Frontier

Daron Acemoglu, Philippe Aghion and Fabrizio Zilibotti

No 9191, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We construct a model where the equilibrium organization of firms changes as an economy approaches the world technology frontier. In vertically integrated firms, owners (managers) have to spend time both on production and innovation activities, and this creates managerial overload, and discourages innovation. Outsourcing of some production activities mitigates the managerial overload, but creates a holdup problem, causing some of the rents of the owners to be dissipated to the supplier. Far from the technology frontier, imitation activities are more important, and vertical integration is preferred. Closer to the frontier, the value of innovation increases, encouraging outsourcing.

JEL-codes: L22 O31 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-ent
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Published as Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2003. "Vertical Integration and Distance to Frontier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 630-638, 04/05.

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Journal Article: Vertical Integration and Distance to Frontier (2003)
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Working Paper: Vertical Integration and Distance to Frontier (2002)
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