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Technology, Information, and the Decentralization of the Firm

  • Zilibotti, Fabrizio
  • Van Reenen, John
  • Lelarge, Claire
  • Aghion, Philippe
  • Acemoglu, Daron

This paper analyzes the relationship between the diffusion of new technologies and the decentralization of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use his informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the tradeoff shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments, and younger firms are more likely to choose decentralization. Using three data sets on French and British firms in the 1990s, we report robust correlations consistent with these predictions.

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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4481506.

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Date of creation: 2007
Date of revision:
Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:4481506
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