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Measuring And Explaining Decentralization Across Firms And Countries

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Author Info

  • Raffaella Sadun

    (London School of Economics)

  • John Van Reenen

    (London School of Economics)

  • Nick Bloom

    (Stanford)

Abstract

We collect original data on the degree of decentralization in several thousand firms located in the US, Europe and Asia. Specifically, we focus on the autonomy of local plant managers from their Corporate Headquarters in their decisions over hiring, investment, production and sales. We find that American and Northern European firms are much more decentralized than those from Southern Europe and Asia, both domestically and as multinationals abroad. Three factors are associated with greater decentralization. First, stronger product market competition, which arguably makes manager’s local knowledge more important because of greater time-sensitivity of decision-making. Second, higher trust in the plant’s region of location (and/or multinational’s home country), which may help to sustain effective delegation because of enhanced co-operation. And third, the prevalence of hierarchical religions, such as Catholicism and Islam, which may lead managers to have weaker preferences for autonomous decision making. These factors appear important across countries, across regions within countries, and for multinationals according to their country of ownership. If - as suggested by the literature - decentralization is complementary to some forms of information and communication technology, Catholic countries with lower trust and competition, like France and Italy, may benefit less from an era of rapid technological change than Protestant countries with greater trust and competition, like Sweden and the U.S.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 246.

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Date of creation: 2008
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Handle: RePEc:red:sed008:246

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  1. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Massimo G. Colombo & Marco Delmastro, 2004. "Delegation of Authority In Business Organizations: An Empirical Test," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 53-80, 03.
  3. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-79, March.
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Cited by:
  1. Nathan Nunn & Leonard Wantchekon, 2011. "The Slave Trade and the Origins of Mistrust in Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3221-52, December.
  2. Nick Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2009. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," CEP Discussion Papers dp0927, Centre for Economic Performance, LSE.
  3. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2012. "Matching Firms, Managers, and Incentives," CEP Discussion Papers dp1144, Centre for Economic Performance, LSE.
  4. MIYAJIMA Hideaki, 2009. "Pluralistic Evolution of the Japanese-Style Enterprise System: Toward the Hybrid Model (Japanese)," Discussion Papers (Japanese) 09017, Research Institute of Economy, Trade and Industry (RIETI).
  5. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009.
  6. Pauline Grosjean, 2011. "A History of Violence: The Culture of Honor as a Determinant of Homicide in the US South," Discussion Papers 2011-13, School of Economics, The University of New South Wales.
  7. Thomas Triebs & Subal C. Kumbhakar, 2012. "Management Practice in Production," Ifo Working Paper Series Ifo Working Paper No. 129, Ifo Institute for Economic Research at the University of Munich.

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