The paper analyzes a peculiar managerial practice, the delegation of decision authority to employees. The practice could enable firms to leverage the external knowledge developed by communities of users and developers. The work focuses on the interaction between firms doing business with open-source software firms ("OS firms") and the community of OS developers. Specifically, we study the determinants of delegating decisional authority to employees for collaboration between the firm and the OS community. The paper draws on contributions from optimal delegation literature to formulate a number of theoretical hypotheses, which we tested using the data collected on 316 European OS firms. The estimates of a Heckman two-stage probit model indicate that the greater the strategic importance of OS for the firm, the greater the probability of delegation. Conversely, the probability is lower when the firm has accumulated more experience through prior interactions with the community and the room for divergence between the decisions made by employees and the choices that maximize firm’s pay-offs.
Keywords: Delegation of decision authority, open source firms, external knowledge sourcing, agency theory
Jel Code: O31, D8, L17