Come Together: Firm Boundaries and Delegation

Laura Alfaro, Nicholas Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman, Raffaella Sadun and John van Reenen

No 24603, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop an incomplete-contracts model to jointly study firm boundaries and the al-location of decision rights within them. Integration has an option value: it gives firm owners authority to delegate or centralize decision rights, depending on who can best solve problems that may arise in the course of course of an uncertain production process. To examine the evidence, we construct measures of vertical integration and delegation for thousands of firms in different countries and industries. In line with the model’s pre-dictions, we find that input value and supplier uncertainty play a key role in shaping both integration and delegation choices.

JEL-codes: D2 L2 (search for similar items in EconPapers)
Date: 2018-05
Note: IO PR
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Citations: View citations in EconPapers (6)

Published as Laura Alfaro & Nick Bloom & Paola Conconi & Harald Fadinger & Patrick Legros & Andrew F Newman & Raffaella Sadun & John Van Reenen, 2024. "Come Together: Firm Boundaries and Delegation," Journal of the European Economic Association, vol 22(1), pages 34-72.

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