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Come Together: Firm Boundaries and Delegation
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Come Together: Firm Boundaries and Delegation

Author

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

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 & Andrew F. Newman & Raffaella Sadun & John Van Reenen & Nicholas Bloom, 2018. "Come Together: Firm Boundaries and Delegation," CESifo Working Paper Series 7054, CESifo.
    • Handle: RePEc:ces:ceswps:_7054
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    Cited by:

    1. 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.
    2. Berlingieri, Giuseppe & Pisch, Frank & Steinwender, Claudia, 2018. "Organizing global supply chains: input costs shares and vertical integration," LSE Research Online Documents on Economics 91706, London School of Economics and Political Science, LSE Library.
    3. 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.
    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:

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

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