Department of Economics
Stanford, CA 94305
NBER Working Papers and Publications
|April 2017||Turbulence, Firm Decentralization and Growth in Bad Times|
with Philippe Aghion, Nicholas Bloom, Raffaella Sadun, John Van Reenen: w23354
What is the optimal form of firm organization during “bad times”? We present a model of delegation within the firm to show that the effect is ambiguous. The greater turbulence following macro shocks may benefit decentralized firms because the value of local information increases (the “localist” view). On the other hand, the need to make tough decisions may favor centralized firms (the “centralist” view). Using two large micro datasets on firm decentralization from ten OECD countries and US administrative data, we find that firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. Using direct measures of turbulence based on product...