Come Together: Firm Boundaries and Delegation

60 Pages Posted: 18 Jul 2018

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Paola Conconi

Centre for Economic Policy Research (CEPR); Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Harald Fadinger

University of Mannheim

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Northeastern University, department of economics; Centre for Economic Policy Research (CEPR)

Andrew F. Newman

Boston University - Department of Economics

Raffaella Sadun

Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

John Van Reenen

Massachusetts Institute of Technology (MIT)

Multiple version iconThere are 3 versions of this paper

Date Written: June 01, 2018

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.

Keywords: vertical integration, delegation, real options, supply assurance

JEL Classification: D200, L200

Suggested Citation

Alfaro, Laura and Bloom, Nicholas and Conconi, Paola and Fadinger, Harald and Legros, Patrick and Newman, Andrew F. and Sadun, Raffaella and Van Reenen, John, Come Together: Firm Boundaries and Delegation (June 01, 2018). CESifo Working Paper Series No. 7054. Available at SSRN: https://ssrn.com/abstract=3208593

Laura Alfaro

Harvard University ( email )

Cambridge, MA 02138
United States

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paola Conconi (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 2 650 2345 (Phone)
32 2 650 4475 (Fax)

Harald Fadinger

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4219/3 (Phone)
+32 2 650 4475 (Fax)

Northeastern University, department of economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Andrew F. Newman

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-358-4354 (Phone)
617-353-4143 (Fax)

Raffaella Sadun

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

John Van Reenen

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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