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Technology, Information and the Decentralization of the Firm

Author

Listed:
  • Daron Acemoglu
  • Philippe Aghion
  • Claire Lelarge
  • John Van Reenen
  • Fabrizio Zilibotti

Abstract

This paper develops a framework to analyze the relationship between the diffusion of new technologies and the decentralization decisions of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use her informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the trade-off shifts in favour of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments and younger firms are more likely to choose decentralization. Using three datasets of French and British firms in the 1990s, we report robust correlations consistent with these predictions.

Suggested Citation

  • Daron Acemoglu & Philippe Aghion & Claire Lelarge & John Van Reenen & Fabrizio Zilibotti, 2006. "Technology, Information and the Decentralization of the Firm," CEP Discussion Papers dp0722, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0722
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    More about this item

    Keywords

    Decentralization; heterogeneity; learning; the theory of the firm;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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