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Come Together: Firm Boundaries and Delegation

Author

Listed:
  • Laura Alfaro

    (HBS and NBER)

  • Nick Bloom

    (Stanford, CEP, NBER and CEPR)

  • Paola Conconi

    (UniversiteÌ Libre de Bruxelles (ECARES), CEPR and CESifo)

  • Harald Fadinger

    (Mannheim and CEPR)

  • Patrick Legros

    (UniversiteÌ Libre de Bruxelles (ECARES), Northeastern and CEPR)

  • Andrew F. Newman

    (Boston University and CEPR)

  • Raffaella Sadun

    (HBS, CEP, NBER and CEPR)

  • John Van Reenen

    (MIT, CEP, NBER and CEPR)

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 com- bines 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 find that integration and delegation co-vary positively, and that producers are more likely to integrate sup- pliers in input sectors with greater productivity variation. Further, producers are more likely to integrate suppliers of more important inputs and to delegate decisions to them.

Suggested Citation

  • Laura Alfaro & Nick Bloom & Paola Conconi & Harald Fadinger & Patrick Legros & Andrew F. Newman & Raffaella Sadun & John Van Reenen, 2018. "Come Together: Firm Boundaries and Delegation," Boston University - Department of Economics - Working Papers Series WP2018-13, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2018-013
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    File URL: http://www.bu.edu/econ/files/2017/03/8way.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Berlingieri, Giuseppe & Pisch, Frank & Steinwender, Claudia, 2018. "Organizing global supply chains: input costs shares and vertical integration," LSE Research Online Documents on Economics 91706, London School of Economics and Political Science, LSE Library.
    4. Marcus Biermann, 2022. "The role of management practices in acquisitions and the FDI location decision," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 137-165, February.

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    More about this item

    Keywords

    Vertical integration; decentralization; real options; supply assurance;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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