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Technology, Information and the Decentralization of the Firm

67 Pages Posted: 24 Apr 2006  

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Claire Lelarge

Banque de France - Economic Study and Research Division; Centre for Economic Policy Research (CEPR)

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)

Fabrizio Zilibotti

University of Zurich; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: April 13, 2006

Abstract

This paper develops a framework to analyze the relationship between the diffusion of new technologies and the decentralization decisions of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use her informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the trade-off shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments and younger firms are more likely to choose decentralization. Using three datasets of French and British firms in the 1990s, we report robust correlations consistent with these predictions.

Keywords: decentralization, heterogeneity, learning, the theory of the firm

JEL Classification: O31, O32, O33, F23

Suggested Citation

Acemoglu, Daron and Aghion, Philippe and Lelarge, Claire and Van Reenen, John and Zilibotti, Fabrizio, Technology, Information and the Decentralization of the Firm (April 13, 2006). MIT Department of Economics Working Paper No. 06-08. Available at SSRN: https://ssrn.com/abstract=898008 or http://dx.doi.org/10.2139/ssrn.898008

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Philippe Aghion

College de France and London School of Economics and Political Science, Fellow ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Claire Lelarge

Banque de France - Economic Study and Research Division ( email )

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HOME PAGE: http://https://sites.google.com/site/clairelelargeeconomics/

Centre for Economic Policy Research (CEPR) ( email )

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John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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Stanford Graduate School of Business ( email )

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Institute for Fiscal Studies (IFS) ( email )

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Centre for Economic Policy Research (CEPR)

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Fabrizio Zilibotti

University of Zurich ( email )

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Switzerland

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
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United Kingdom

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