Working Paper: NBER ID: w23777
Authors: Enghin Atalay; Ali Hortasu; Mary Jialin Li; Chad Syverson
Abstract: We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries; which transactions are mediated by ownership control, as opposed to contracts or markets. We find firm boundaries to be an economically significant barrier to trade: having an additional vertically integrated establishment in a given destination zip code has the same effect on shipment volumes as a 40 percent reduction in distance. We then calibrate a multisector trade model to quantify the economy-wide implications of transacting across vs. within firm boundaries.
Keywords: Firm boundaries; Transaction costs; Vertical integration; Trade volume
JEL Codes: D2; F14; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm boundaries (D21) | Trade volume (F10) |
| Internal transactions (L14) | Perceived costs of transacting outside firm borders (F12) |
| Distance (R12) | Transaction volumes (G15) |
| Contextual factors (D91) | Net benefits of internal transactions (H23) |
| Common ownership (G32) | Mitigation of transaction costs (D23) |