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  • Forthcoming
  • Article
  • Journal of the European Economic Association

Come Together: Firm Boundaries and Delegation

By: Laura Alfaro, Nick Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew F. Newman, Raffaella Sadun and John Van Reenen
  • Format:Print
  • | Pages:39
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Abstract

We develop an incomplete-contracts model to jointly study firm boundaries and the allocation 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 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 predictions, we find that input value and supplier uncertainty play a key role in shaping both integration and delegation choices.

Keywords

Boundaries; Decision Choices and Conditions; Risk and Uncertainty

Citation

Alfaro, Laura, Nick Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew F. Newman, Raffaella Sadun, and John Van Reenen. "Come Together: Firm Boundaries and Delegation." Journal of the European Economic Association (forthcoming). (Pre-published online May 11, 2023.)
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About The Authors

Laura Alfaro

General Management
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Raffaella Sadun

Strategy
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More from the Authors
  • Global Supply Chains: The Looming 'Great Reallocation' By: Laura Alfaro and Davin Chor
  • Reskilling in the Age of AI By: Jorge Tamayo, Leila Doumi, Sagar Goel, Orsolya Kovács-Ondrejkovic and Raffaella Sadun
  • Urgent: The IMF Must Reform By: Laura Alfaro, Guillermo Calvo, José de Gregorio, Augusto de la Torre, Roque Fernandez, Pablo Guidotti, Enrique Mendoza, Ernesto Talvi, Liliana Rojas-Suarez and Andrés Velasco
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