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      Come Together: Firm Boundaries and Delegation
      08 Jan 2018Working Paper Summaries

      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
      The study develops a simple model and provides new data to examine the relationship between vertical integration and delegation of decision-making, two critical aspects of a firm organizational design that are typically studied in isolation. The results show that delegation and vertical integration are positively correlated.
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      Author 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 where firms choose which suppliers to integrate and whether to delegate decisions to integrated suppliers or keep them centralized. We test the predictions of this model using a novel dataset that combines measures of vertical integration and delegation for a large set of firms operating in many countries and industries. In line with the model’s predictions, we find that integration and delegation covary positively, and that producers are more likely to integrate suppliers in input sectors with greater productivity variation.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: December 2017
      • HBS Working Paper Number: HBS Working Paper #18-051
      • Faculty Unit(s): Business, Government and International Economy
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      Laura Alfaro
      Laura Alfaro
      Warren Alpert Professor of Business Administration
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      Raffaella Sadun
      Raffaella Sadun
      Professor of Business Administration
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