Skip to main content Skip to secondary navigation
Publication

Come together: firm boundaries and delegation

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.

Author(s)
Laura Alfaro
Patrick Legros
Nicholas Bloom
Andrew Newman
Paola Conconi
Raffaella Sadun
Harald Fadinger
John Van Reenan
Publication Date
May, 2018