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Technology, Information, and the Decentralization of the Firm

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Author Info
Daron Acemoglu (Massachusetts Institute of Technology)
Philippe Aghion (Harvard University)
Claire Lelarge (Insee-Crest Paris)
John Van Reenen (London School of Economics and Centre for Economic Performance)
Fabrizio Zilibotti (University of Zürich)

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Abstract

This paper analyzes the relationship between the diffusion of new technologies and the decentralization 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 his 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 tradeoff 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 data sets on French and British firms in the 1990s, we report robust correlations consistent with these predictions. (c) 2007 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2007.122.4.1759
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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 122 (2007)
Issue (Month): 4 (November)
Pages: 1759-1799
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Handle: RePEc:tpr:qjecon:v:122:y:2007:i:4:p:1759-1799

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  1. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Incentives: Theory and Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  2. Garicano, Luis & Heaton, Paul, 2006. "Computing Crime: Information Technology, Police Effectiveness and the Organization of Policing," CEPR Discussion Papers 5837, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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