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Trust, Firm Organization and the Structure of Production

  • Federico Cingano
  • Paolo Pinotti

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.

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Paper provided by "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi in its series Working Papers with number 053.

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Length: 49 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:don:donwpa:053
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  1. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2004. "Vertical integration and technology: theory and evidence," IFS Working Papers W04/34, Institute for Fiscal Studies.
  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Trusting the Stock Market," NBER Working Papers 11648, National Bureau of Economic Research, Inc.
  3. Lafontaine, Francine & Slade, Margaret, 2007. "Vertical Integration and Firm Boundaries : The Evidence," The Warwick Economics Research Paper Series (TWERPS) 799, University of Warwick, Department of Economics.
  4. repec:oup:restud:v:74:y:2007:i:3:p:791-819 is not listed on IDEAS
  5. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital And Predict Financial Decisions," Working Papers 909, Economic Growth Center, Yale University.
  6. Ichino, Andrea & Maggi, Giovanni, 2000. "Work Environment And Individual Background: Explaining Regional Shirking Differentials In A Large Italian Firm," CEPR Discussion Papers 2387, C.E.P.R. Discussion Papers.
  7. Acemoglu, Daron & Aghion, Philippe & Lelarge, Claire & Van Reenen, John & Zilibotti, Fabrizio, 2006. "Technology, Information and the Decentralization of the Firm," CEPR Discussion Papers 5678, C.E.P.R. Discussion Papers.
  8. Dean Karlan, 2004. "Using experimental economics to measure social capital and predict financial decisions," Artefactual Field Experiments 00074, The Field Experiments Website.
  9. Francisco Pérez-González, 2006. "Inherited Control and Firm Performance," American Economic Review, American Economic Association, vol. 96(5), pages 1559-1588, December.
  10. Andrea Ichino & Giovanni Maggi, 2000. "Work Environment and Individual Background: Explaining Regional Shirking Differentials in a Large Italian Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 1057-1090.
  11. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  12. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  13. Philippe Aghion & Yann Algan & Pierre Cahuc, 2011. "Civil Society And The State: The Interplay Between Cooperation And Minimum Wage Regulation," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 3-42, 02.
  14. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
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