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Technology, Information and the Decentralization of the Firm

  • D, Acemoglu

    (Crest)

  • Philippe Aghion

    (Crest)

  • Claire Lelarge

    (Crest)

  • John Van Reenen

    (Crest)

  • Fabrizzio Zilibotti

    (Crest)

This paper develops a framework to analyze the relationship between the diffusion ofnew technologies and the decentralization decisions of firms. Centralized controlrelies on the information of the principal, which we equate with publicly availableinformation. Decentralized control, on the other hand, delegates authority to amanager with superior information. However, the manager can use her informationaladvantage to make choices that are not in the best interest of the principal. As theavailable public information about the specific technology increases, the trade-offshifts in favor of centralization. We show that firms closer to the technologicalfrontier, firms in more heterogeneous environments and younger firms are morelikely to choose decentralization. Using three datasets of French and British firms inthe 1990s, we report robust correlations consistent with these predictions.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2006-12.

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Length: 68
Date of creation: 2006
Date of revision:
Handle: RePEc:crs:wpaper:2006-12
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