Trade in tasks and the organization of firms

In this paper, we incorporate trade in tasks into Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that offshoring of production tasks and of managerial tasks can lead to more decentralized management and to larger executive wages in open economies. We study the predictions of the model with original firm level data and find that offshoring firms are 18% more decentralized than non-offshoring firms. We also find that offshoring of managers increases the level of decentralized management in open industries, but reduces the level of decentralized management in sufficiently closed industries.