Delegation in Multi-Establishment Firms: Evidence from I.T. Purchasing

Authors


  • Thanks are due to Chris Forman, Bob Gibbons, Shane Greenstein, Oliver Hart, William Kerr, Andrew King, Mara Lederman, Niko Matouschek, Raffaella Sadun, Scott Stern, Catherine Thomas, Heidi Williams, two anonymous referees and co-editor, and seminar participants at the ASSA meetings, Harvard, MIT, NBER Summer Institute and Productivity Lunch, and the Workshop on Information Systems and Economics. I am grateful to Guy Arie and Jin Woo Chang for helpful research assistance and to Jim Davis and Lynn Riggs of the U.S. Census Bureau for their unstinting support. Harte Hanks, Inc. provided essential proprietary data. The research in this paper was conducted while the author was a Special Sworn Status researcher of the U.S. Census Bureau at the Chicago and Boston Census Research Data Centers. Any opinions and conclusions expressed herein are those of the author, and do not necessarily represent the view of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Support for this research from the NSF (awards no. SES-0004335 and ITR-0427889), the Census Bureau's Dissertation Fellowship program, and the State Farm Companies Foundation Dissertation Award is also gratefully acknowledged. All errors remain my own.

Abstract

Recent contributions to a growing theory literature have focused on the tradeoff between adaptation and coordination in determining delegation within firms. Empirical evidence, however, is limited. Using establishment-level data on decision rights over information technology investments, I find that a high net value of adaptation is strongly associated with delegation, as are local information advantages and firm-wide diversification; in contrast, a high net value of within-firm coordination is correlated with centralization. Variation across establishments within firms is widespread: most firms are neither fully centralized nor fully decentralized. Delegation patterns are largely consistent with standard team-theory predictions; however, certain findings, such as a negative correlation between delegation and firm size, call for a consideration of agency costs as well.

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