Working Paper: NBER ID: w18842
Authors: Philippe Aghion; Nicholas Bloom; John Van Reenen
Abstract: We survey the theoretical and empirical literature on decentralization within firms. We first discuss how the concept of incomplete contracts shapes our views about the organization of decision-making within firms. We then overview the empirical evidence on the determinants of decentralization and on the effects of decentralization on firm performance. A number of factors highlighted in the theory are shown to be important in accounting for delegation, such as heterogeneity and congruence of preferences as proxied by trust. Empirically, competition, human capital and IT also appear to foster decentralization. There are substantial gaps between theoretical and empirical work and we suggest avenues for future research in bridging this gap.
Keywords: Incomplete Contracts; Internal Organization; Decentralization; Firm Performance
JEL Codes: D21; D22; D23; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trust (G21) | decentralization (H77) |
| competition (L13) | decentralization (H77) |
| human capital (J24) | decentralization (H77) |
| competition (L13) | incentives alignment (M52) |
| incentives alignment (M52) | decentralization (H77) |