Abstract

http://ssrn.com/abstract=1534722
 
 

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Does Product Market Competition Lead Firms to Decentralize?


Nicholas Bloom


Stanford University - Department of Economics; London School of Economics - Centre for Economic Performance (CEP); National Bureau of Economic Research (NBER)

Raffaella Sadun


Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

John Van Reenen


London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

January 11, 2010

Harvard Business School Strategy Unit Working Paper No. 10-052

Abstract:     
There is a widespread sense that over the last two decades firms have been decentralizing decisions to employees further down the managerial hierarchy. Economists have developed a range of theories to account for delegation, but there is less empirical evidence, especially across countries. This has limited the ability to understand the phenomenon of decentralization. To address the empirical lacuna we have developed a research program to measure the internal organization of firms - including their decentralization decisions - across a large range of industries and countries. In this paper we investigate whether greater product market competition increases decentralization. For example, tougher competition may make local manager’s information more valuable, as delays to decisions become more costly. Since globalization and liberalization have increased the competitiveness of product markets, one explanation for the trend towards decentralization could be increased competition. Of course there are a range of other factors that may also be at play, including human capital, information and communication technology, culture and industrial composition. To tackle these issues we collected detailed information on the internal organization of firms across nations. The few data-sets that exist are either from a single industry or (at best) across many firms in a single country. We analyze data on almost 4,000 firms across twelve countries in Europe, North America and Asia. We find that competition does indeed seem to foster greater decentralization.

Number of Pages in PDF File: 12

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Date posted: January 11, 2010  

Suggested Citation

Bloom, Nicholas and Sadun, Raffaella and Van Reenen, John, Does Product Market Competition Lead Firms to Decentralize? (January 11, 2010). Harvard Business School Strategy Unit Working Paper No. 10-052. Available at SSRN: http://ssrn.com/abstract=1534722 or http://dx.doi.org/10.2139/ssrn.1534722

Contact Information

Nicholas Bloom
Stanford University - Department of Economics ( email )
Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)
HOME PAGE: http://economics.stanford.edu/faculty/bloom
London School of Economics - Centre for Economic Performance (CEP) ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7408 (Phone)
HOME PAGE: http://cep.lse.ac.uk/people/bio.asp?id=1498
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Raffaella Sadun (Contact Author)
Harvard University - Strategy Unit ( email )
Harvard Business School
Soldiers Field Road
Boston, 02163
United States
HOME PAGE: http://people.hbs.edu/rsadun
London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )
Houghton Street
London WC2A 2AE
United Kingdom
HOME PAGE: http://cep.lse.ac.uk/_new/staff/person.asp?id=1758
John Michael Van Reenen
London School of Economics - Centre for Economic Performance (CEP) ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6976 (Phone)
+44 20 7955 6848 (Fax)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

Institute for Fiscal Studies (IFS) ( email )
7 Ridgmount Street
London, WC1E 7AE
United Kingdom
+44 20 7240 6740 (Phone)
+44 20 7240 6136 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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References:  15
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