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Incomplete contracts and the internal organisation of firms

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  • Aghion, Philippe
  • Van Reenen, John
  • Bloom, Nicholas

Abstract

We survey the theoretical and empirical literature on decentralization within firms. We first discuss how the concept of incomplete contracts shapes our views about the organization of decision-making within firms. We then overview the empirical evidence on the determinants of decentralization and on the effects of decentralization on firm performance. A number of factors highlighted in the theory are shown to be important in accounting for delegation, such as heterogeneity and congruence of preferences as proxied by trust. Empirically, competition, human capital and IT also appear to foster decentralization. There are substantial gaps between theoretical and empirical work and we suggest avenues for future research in bridging this gap.

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  • Aghion, Philippe & Van Reenen, John & Bloom, Nicholas, 2013. "Incomplete contracts and the internal organisation of firms," LSE Research Online Documents on Economics 57987, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:57987
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    Cited by:

    1. Gur, Nurullah & Bjørnskov, Christian, 2017. "Trust and delegation: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 644-657.
    2. Michael Beckmann, 2016. "Working-time autonomy as a management practice," IZA World of Labor, Institute of Labor Economics (IZA), pages 230-230, January.
    3. Beckmann, Michael & Cornelissen, Thomas & Kräkel, Matthias, 2017. "Self-managed working time and employee effort: Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 285-302.
    4. Aghion, Philippe & Bloom, Nick & Lucking, Brian & Sadun, Raffaella & Van Reenen, John, 2017. "Turbulence, firm decentralization and growth in bad times," LSE Research Online Documents on Economics 83613, London School of Economics and Political Science, LSE Library.
    5. Phillipe Aghion & Nicholas Bloom & John Van Reenen, 2014. "Incomplete Contracts and the Internal Organization of Firms," Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 37-63.
    6. Stefano Filomeni & Gregory F. Udell & Alberto Zazzaro, 2016. "Hardening Soft Information: How Far Has Technology Taken Us?," CSEF Working Papers 455, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    7. Jin Li & Niko Matouschek & Michael Powell, 2017. "Power Dynamics in Organizations," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 217-241, February.
    8. Emre Ekinci & Nikolaos Theodoropoulos, 2019. "Disagreement and Informal Delegation in Organizations," University of Cyprus Working Papers in Economics 11-2019, University of Cyprus Department of Economics.
    9. Jieun Chang & Youngho Kang, 2019. "Instrumental Variable Estimates of the Effect of Management Practices on Firm Performance in Korean Firms," Journal of Labor Research, Springer, vol. 40(1), pages 106-125, March.
    10. Athanasouli, Daphne & Goujard, Antoine, 2015. "Corruption and management practices: Firm level evidence," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1014-1034.
    11. Levina, Irina A. (Левина, Ирина), 2017. "What Limits Decentralization at Russian Firms? [Что Ограничивает Децентрализацию На Российских Фирмах?]," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 62-79, October.
    12. Francisco Brahm & Jorge Tarziján, 2016. "Toward an integrated theory of the firm: The interplay between internal organization and vertical integration," Strategic Management Journal, Wiley Blackwell, vol. 37(12), pages 2481-2502, December.
    13. Burdin, Gabriel & Pérotin, Virginie, 2019. "Employee representation and flexible working time," Labour Economics, Elsevier, vol. 61(C).
    14. Chandan Kumar, 2018. "Opportunism and hold-up in the incomplete public private partnership (PPP) contracts," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    15. Levina, Irina, 2016. "By connection or by competition? Decentralization of decision-making and hiring strategies at Russian firms," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 43, pages 73-95.
    16. Shu-Yuan Chen & Chih-Hsun Chuang & Shyh-jer Chen, 2018. "A conceptual review of human resource management research and practice in Taiwan with comparison to select economies in East Asia," Asia Pacific Journal of Management, Springer, vol. 35(1), pages 213-239, March.
    17. MORIKAWA Masayuki, 2014. "Are Large Headquarters Unproductive? Evidence from a panel of Japanese companies," Discussion papers 14036, Research Institute of Economy, Trade and Industry (RIETI).
    18. Christos Bilanakos & John S. Heywood & John Sessions & Nikolaos Theodoropoulos, 2016. "Delegation and worker training," University of Cyprus Working Papers in Economics 06-2016, University of Cyprus Department of Economics.
    19. Richard Friberg & Mark Sanctuary, 2020. "Exchange rate risk and the skill composition of labor," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(2), pages 287-312, May.
    20. Emre Ekinci & Nikos Theodoropoulos, 2018. "Informal Delegation and Training," University of Cyprus Working Papers in Economics 02-2018, University of Cyprus Department of Economics.
    21. Christos Bilanakos & John S. Heywood & John G. Sessions & Nikolaos Theodoropoulos, 2018. "Does Delegation Increase Worker Training?," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1089-1115, April.
    22. Morikawa, Masayuki, 2015. "Are large headquarters unproductive?," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 422-436.
    23. Marco Faillo & Costanza Piovanelli, 2017. "Wage delegation and intrinsic motivation: an experimental study," CEEL Working Papers 1701, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    24. Irina Levina, 2018. "Decentralization of Firms in a Country with Weak Institutions: Evidence from Russia," Working Papers 375, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).

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    • J1 - Labor and Demographic Economics - - Demographic Economics

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