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Come Together: Firm Boundaries and Delegation

Author

Listed:
  • Laura Alfaro
  • Nick Bloom
  • Paola Conconi
  • Harald Fadinger
  • Patrick Legros
  • John Newman
  • Raffaella Sadun
  • John Van Reenen

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 combines 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 obtain three main results: (i) integration and delegation co-vary positively; (ii) producers are more likely to integrate suppliers in input sectors with greater productivity variation (as the option value of integration is greater); and (iii) 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 & John Newman & Raffaella Sadun & John Van Reenen, 2018. "Come Together: Firm Boundaries and Delegation," Working Papers ECARES 2018-11, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/270659
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    Cited by:

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    2. Giuseppe Berlingieri & Frank Pisch & Claudia Steinwender, 2021. "Organizing Global Supply Chains: Input-Output Linkages and Vertical Integration," Journal of the European Economic Association, European Economic Association, vol. 19(3), pages 1816-1852.
    3. 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.
    4. Gary B. Gorton & Alexander K. Zentefis, 2020. "Corporate Culture as a Theory of the Firm," NBER Working Papers 27353, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

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

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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