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Technology, information, and the decentralization of the firm


Acemoglu, Daron; Aghion, Philippe; LeLarge, Claire; Van Reenen, John; Zilibotti, Fabrizio (2007). Technology, information, and the decentralization of the firm. Quarterly Journal of Economics, 122(4):1759-1799.

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 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.

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 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.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2007
Deposited On:28 Mar 2008 09:53
Last Modified:05 Apr 2016 12:22
Publisher:MIT Press
ISSN:0033-5533
Publisher DOI:https://doi.org/10.1162/qjec.2007.122.4.1759

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