Work

Vertical Integration and Distance to Frontier

Year: 2002

Type: article

Abstract: We construct a model where the equilibrium organization of firms changes as an economy approaches the world technology frontier.In vertically integrated firms, owners (managers) have to spend time both on production and innovation activities, and this creates managerial overload, and discourages innovation.Outsourcing of some production activities mitigates the managerial overload, but creates a holdup problem, causing some of the rents of the owners to be dissipated to the supplier.Far from the technology frontier, imitation activities are more important, and vertical integration is preferred.Closer to the frontier, the value of innovation increases, encouraging outsourcing.

Source: Journal of the European Economic Association

DOI: 10.3386/w9191

Authors: Daron Acemoglu, Philippe Aghion, Fabrizio Zilibotti

Institutions: National Bureau of Economic Research, Centre for Economic Policy Research, Massachusetts Institute of Technology, Harvard University, Collège de France, University College London, London School of Economics and Political Science, Yale University

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Industry, innovation and infrastructure, Decent work and economic growth

Open Access status: green

OpenAlex ID: W2164858901

FWCI: 14.93

Cites: 10

Cited by: 154

Related to: 10