TY  - JOUR
AU  - Acemoglu,Daron
AU  - Aghion,Philippe
AU  - Zilibotti,Fabrizio
TI  - Vertical Integration and Distance to Frontier
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9191
PY  - 2002
Y2  - September 2002
UR  - http://www.nber.org/papers/w9191
L1  - http://www.nber.org/papers/w9191.pdf
N1  - Author contact info:
Daron Acemoglu
Department of Economics
MIT, E52-380B
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-1927
Fax: 617/253-1330
E-Mail: daron@mit.edu

Philippe Aghion
Department of Economics
Harvard University
1805 Cambridge St
Cambridge, MA 02138
Tel: 617/495-6675
Fax: 617/495-4341
E-Mail: paghion@fas.harvard.edu

Fabrizio Zilibotti
IIES Stockholm University
Hus A, Trappa 8
SE 10691, Stockholm
Sweden
Tel: +46 8 162225
E-Mail: zilibott@iew.uzh.ch
AB  - 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.
ER  -