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Trust, Firm Organization and the Structure of Production

Number: 53
Year: 2012
Author(s): Federico Cingano, Paolo Pinotti
Keywords: trust,delegation,firm size,comparative advantage
Interpersonal trust favors the expansion of organizations by allowing the delegation of decisions and tasks among anonymous others or people that interact only infrequently. We document these facts for a representative survey of Italian manufacturing firms and use this source of data to construct an industry-specific measure of need-for-delegation in production. We then show that trust shapes comparative advantage, as high-trust regions and countries exhibit larger value added and export shares in delegation-intensive industries relative to other industries. Such effects are associated with an increase in average firm size, while the number of firms is not significantly affected. Larger average size reflects in turn a shift of the distribution away from the smallest firms, consistently with the idea that trust allows organizations to expand beyond the narrow circle of family members and close friends.

Federico Cingano


Paolo Pinotti

Universita Bocconi, Dondena Centre for Research on Social Dynamics


Keywords: Trust, delegation, firm size, comparative advantage


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