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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Vertical Integration and Distance to Frontier |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of the European Economic Association |
| Publisher | MIT Press |
| Geographical Reach | international |
| ISSN | 1542-4766 |
| Volume | 1 |
| Number | 2-3 |
| Page Range | 630 - 638 |
| Date | 2003 |
| Abstract Text | 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. |
| Digital Object Identifier | 10.1162/154247603322391260 |
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