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Trust, Firm Organization and the Structure of Production

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  • 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.

Suggested Citation

  • Federico Cingano & Paolo Pinotti, 2012. "Trust, Firm Organization and the Structure of Production," Working Papers 053, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.
  • Handle: RePEc:don:donwpa:053
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    File URL: ftp://ftp.dondena.unibocconi.it/WorkingPapers/Dondena_WP053.pdf
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    References listed on IDEAS

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    8. Daron Acemoglu & Philippe Aghion & Claire Lelarge & John Van Reenen & Fabrizio Zilibotti, 2007. "Technology, Information, and the Decentralization of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1759-1799.
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    Cited by:

    1. repec:eee:jcecon:v:45:y:2017:i:3:p:644-657 is not listed on IDEAS
    2. 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.
    3. van Hoorn, Andre, 2017. "Social trust, workplace organization, and the comparative advantage of nations," MPRA Paper 80017, University Library of Munich, Germany.
    4. 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.
    5. Yann Algan & Pierre Cahuc, 2014. "Trust, Well-Being and Growth: New Evidence and Policy Implications," Sciences Po publications info:hdl:2441/33o86cn6qp8, Sciences Po.
    6. 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.
    7. 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.
    8. 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.
    9. Cline, Brandon N. & Williamson, Claudia R., 2016. "Trust and the regulation of corporate self-dealing," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 572-590.

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    Keywords

    Trust; delegation; firm size; comparative advantage;

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