The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Firm Boundaries (Empirical Studies)

  • Thomas N. Hubbard
Reference work entry


The empirical literature on the determinants of firms’ boundaries examines relationships between firms’ boundaries and asset specificity, especially how relationship-specific investments create ‘hold-up’ problems that increase the costs of competitive contracting; relationships between firms’ boundaries and the contracting environment, reflecting the role of incomplete contracting in the theoretical literature and the extent to which firms subcontract downstream stages rather than input procurement; and how firms’ boundaries vary with ‘job design’. This literature has established that asset specificity is empirically relevant for understanding integration decisions, and that relationships between subcontracting decisions, the contracting environment, and the division of labour are subtle.


Agency costs Asset specificity Coase, R. Contracting Division of labour Firm boundaries Hold-up problem Incomplete contracts Outsourcing Vertical integration 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Acemoglu, D., P. Aghion, R. Griffith, and F. Zilibotti. 2004. Vertical integration and technology: Theory and evidence, Working paper No. 10997. Cambridge, MA: NBER.CrossRefGoogle Scholar
  2. Anderson, E. 1985. The salesperson as outside agent or employee: A transaction-cost analysis. Marketing Science 4: 234–254.CrossRefGoogle Scholar
  3. Anderson, E., and D. Schmittlein. 1984. Integration of the sales force: An empirical examination. Rand Journal of Economics 15: 385–395.CrossRefGoogle Scholar
  4. Azoulay, P. 2005. Capturing knowledge within and across firm boundaries: Evidence from clinical development. American Economic Review 94: 1591–1612.CrossRefGoogle Scholar
  5. Baker, G., and T. Hubbard. 2003. Make versus buy in trucking: Asset ownership, job design, and information. American Economic Review 93: 551–572.CrossRefGoogle Scholar
  6. Baker, G., and T. Hubbard. 2004. Contractibility and ownership: On-board computers and governance in U.S. trucking. Quarterly Journal of Economics 119: 1443–1479.CrossRefGoogle Scholar
  7. Brickley, J., J. Linck, and C. Smith. 2003. Boundaries of the firm: Evidence from the banking industry. Journal of Financial Economics 70: 351–383.CrossRefGoogle Scholar
  8. Coase, R. 1937. The nature of the firm. Economica 4: 386–405.CrossRefGoogle Scholar
  9. Garicano, L., and T. Hubbard. 2003. Specialization, firms, and markets: The division of labor within and between law firms, Working paper No. 9719. Cambridge, MA: NBER.CrossRefGoogle Scholar
  10. Gil, R. 2004. Decision rights and vertical integration in the movie industry. Mimeo. Department of Economics, University of California, Santa Cruz.Google Scholar
  11. Grossman, S., and O. Hart. 1986. The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy 94: 691–719.CrossRefGoogle Scholar
  12. Holmstrom, B., and P. Milgrom. 1994. The firm as an incentive system. American Economic Review 84: 972–991.Google Scholar
  13. Joskow, P. 1985. Vertical integration and long term contracts: The case of coal- burning electric generating plants. Journal of Law, Economics, and Organization 1: 33–80.Google Scholar
  14. Joskow, P. 1988. Asset specificity and the structure of vertical relationships: Empirical evidence. Journal of Law, Economics, and Organization 4: 95–117.Google Scholar
  15. Klein, P. 2005. The make-or-buy decision: Lessons from empirical studies. In Handbook of new institutional economics, ed. C. Menard and M. Shirley. Boston: Kluwer.Google Scholar
  16. Klein, B., R. Crawford, and A. Alchian. 1978. Vertical integration, appropriable rents and the competitive contracting process. Journal of Law and Economics 21: 297–326.CrossRefGoogle Scholar
  17. Lafontaine, F., and M. Slade. 1997. Retail contracting: Theory and practice. Journal of Industrial Economics 45: 1–25.CrossRefGoogle Scholar
  18. Masten, S. 1984. The organization of production: Evidence from the aerospace industry. Journal of Law and Economics 27: 403–417.CrossRefGoogle Scholar
  19. Masten, S., J. Meehan, and E. Snyder. 1991. The costs of organization. Journal of Law, Economics, and Organization 7: 1–25.CrossRefGoogle Scholar
  20. Monteverde, K., and D. Teece. 1982. Supplier switching costs and vertical integration in the automobile industry. Bell Journal of Economics 13: 206–213.CrossRefGoogle Scholar
  21. Perez-Gonzalez, F. 2004. The impact of acquiring control on productivity. AFA 2005 Philadelphia Meetings.Google Scholar
  22. Whinston, M. 2003. On the transaction cost determinants of vertical integration. Journal of Law, Economics, and Organization 19: 1–23.CrossRefGoogle Scholar
  23. Williamson, O. 1975. Markets and hierarchies: Analysis and anti-trust implications. Glencoe: Free Press.Google Scholar
  24. Williamson, O. 1979. Transaction-cost economics: The governance of contractual relations. Journal of Law and Economics 22: 233–261.CrossRefGoogle Scholar
  25. Williamson, O. 1985. The economic institutions of capitalism. New York: Free Press.Google Scholar
  26. Woodruff, C. 2002. Non-contractible investments and vertical integration in the Mexican footwear industry. International Journal of Industrial Organization 20: 1197–1224.CrossRefGoogle Scholar
  27. Yeap, C. 2005. Residual claims and incentives in restaurant chains. Mimeo. University of Chicago.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Thomas N. Hubbard
    • 1
  1. 1.