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Trust, Firm Organization and the Structure of Production

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Author Info

  • Federico Cingano
  • Paolo Pinotti

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.

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File URL: ftp://ftp.dondena.unibocconi.it/WorkingPapers/Dondena_WP053.pdf
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Bibliographic Info

Paper provided by "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi in its series Working Papers with number 053.

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Length: 49 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:don:donwpa:053

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Related research

Keywords: Trust; delegation; firm size; comparative advantage;

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References

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  1. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
  3. Lafontaine, Francine & Slade, Margaret, 2007. "Vertical Integration and Firm Boundaries : The Evidence," The Warwick Economics Research Paper Series (TWERPS) 799, University of Warwick, Department of Economics.
  4. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, 09.
  5. Acemoglu, Daron & Aghion, Philippe & Lelarge, Claire & Van Reenen, John & Zilibotti, Fabrizio, 2006. "Technology, Information and the Decentralization of the Firm," CEPR Discussion Papers 5678, C.E.P.R. Discussion Papers.
  6. Andrea Ichino & Giovanni Maggi, 1999. "Work Environment and Individual Background: Explaining Regional Shirking Differentials in a Large Italian Firm," NBER Working Papers 7415, National Bureau of Economic Research, Inc.
  7. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
  8. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  9. Philippe Aghion & Yann Algan & Pierre Cahuc, 2011. "Civil Society And The State: The Interplay Between Cooperation And Minimum Wage Regulation," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 3-42, 02.
  10. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
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Citations

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Cited by:
  1. Algan, Yann & Cahuc, Pierre, 2014. "Trust, Growth, and Well-Being: New Evidence and Policy Implications," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 49-120 Elsevier.
  2. Franco Amatori & Matteo Bugamelli & Andrea Colli, 2011. "Italian Firms in History: Size, Technology and Entrepreneurship," Quaderni di storia economica (Economic History Working Papers) 13, Bank of Italy, Economic Research and International Relations Area.
  3. Silvia Giacomelli & Carlo Menon, 2013. "Firm size and judicial efficiency: evidence from the neighbour's court," Temi di discussione (Economic working papers) 898, Bank of Italy, Economic Research and International Relations Area.
  4. Silvia Giacomelli & Carlo Menon, 2012. "Firm Size and Judicial Efficiency in Italy: Evidence from the Neighbour's Tribunal," SERC Discussion Papers 0108, Spatial Economics Research Centre, LSE.

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