Vertical Integration and Distance to Frontier / Daron Acemoglu, Philippe Aghion, Fabrizio Zilibotti.

Format:

Book

Author/Creator:

Acemoglu, Daron.

Contributor:

National Bureau of Economic Research.

Aghion, Philippe.

Zilibotti, Fabrizio.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9191.

NBER working paper series no. w9191

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

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.

Notes:

Print version record

September 2002.