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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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    3. Giuseppe Berlingieri & Frank Pisch & Claudia Steinwender, 2018. "Organizing Global Supply Chains: Input Cost Shares and Vertical Integration," NBER Working Papers 25286, National Bureau of Economic Research, Inc.
    4. 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.

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    More about this item

    Keywords

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

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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