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Type: IFS Working Papers Authors: Daron Acemoglu, Philippe Aghion, Rachel Griffith and Fabrizio Zilibotti ISSN: 1742-0415
Volume, issue, pages: 49 pp.
JEL classification: L22, L23, L24, L60 Keywords: holdup, incomplete contracts, internal organisation fo the firm, investment, R&D, technology, vertical integration
This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry us more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of these effects are stronger when the supplying industry accounts for a large fraction of the producer\\\'s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation straegies, and with or without contraolling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives. Search |
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