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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:45
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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).
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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
  • Remote Work across Jobs, Companies, and Space By: Stephen Hansen, Peter John Lambert, Nick Bloom, Steven J. Davis, Raffaella Sadun and Bledi Taska
  • Doing Business in Boston, Massachusetts By: Laura Alfaro, Leonard A. Schlesinger and Zeke Gillman
  • How Does Working from Home during COVID-19 Affect What Managers Do? Evidence from Time-Use Studies By: Thomaz Teodorovicz, Raffaella Sadun, Andrew L. Kun and Orit Shaer
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