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Come Together: Firm Boundaries and Delegation

Laura Alfaro (), Nicholas Bloom (), Paola Conconi (), Harald Fadinger, Patrick Legros, John Newman, Raffaella Sadun () and John van Reenen ()

No 2018-11, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

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.

Keywords: Vertical integration; delegation; real options; supply assurance (search for similar items in EconPapers)
Date: 2018-05
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Related works:
Working Paper: Come Together: Firm Boundaries and Delegation (2019) Downloads
Working Paper: Come Together: Firm Boundaries and Delegation (2018) Downloads
Working Paper: Come Together: Firm Boundaries and Delegation (2018) Downloads
Working Paper: Come Together: Firm Boundaries and Delegation (2018) Downloads
Working Paper: Come Together: Firm Boundaries and Delegation (2018) Downloads
Working Paper: Come Together: Firm Boundaries and Delegation (2018) Downloads
Working Paper: Come together: firm boundaries and delegation (2018) Downloads
Working Paper: Come Together: Firm Boundaries and Delegation (2018) Downloads
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