Technology, Information and the Decentralization of the Firm

Innovation and Economic Growth

Article Snapshot


Daron Acemoglu, Philippe Aghion, Claire Lelarge, John Van Reenen and Fabrizio Zilibotti


Quarterly Journal of Economics, 122, November 2007, pp. 1759-1799


This paper looks at how the kind of information used by a business affects its organization.

Policy Relevance

Young firms, firms in diverse environments, and high-tech firms tend to be less centralized.

Main Points

  • Conventional wisdom suggests that firms are becoming less centralized as technology spreads.

  • In this paper, we consider firms to be more centralized when they are organized into profit centers, and less centralized when they are divided into divisions according to production or cost.
    • In decentralized firms, the firm’s head delegates more decisions to managers, whose interests can align with his or diverge.

  • Data from British and French firms shows that young firms that deal with frequent change or many different business conditions (heterogeneity) and high-tech firms are more likely to be decentralized.
    • The best explanation is that on the frontier, the firm’s head has less valuable information than the managers. Less valuable public information  is available.
    • Heterogeneity makes it difficult for one to learn from other’s experiences.
    • Young firms have less opportunity to learn from their own history.

Get The Article

Find the full article online

Search for Full Article