Vertical Integration and Information Technology Investment in the Insurance Industry

In this paper, we examine whether frictions created by differences in firm boundaries affect the speed with which firms adopt new Information Technology. Using a rich dataset on organizational characteristics and Internet investment by over 100 firms in the insurance industry, we show that vertical integration in distribution has a significant impact on the speed with which insurers adopt consumer Internet applications that complement the existing distribution relationship. Vertical integration, however, has no effect on the adoption of tools that enableelectronic communicationbetweenan insurer and its sales force. Furthermore, vertical integration has no affect on the adoption of Internet technologies, such as basic access, that are not used in distribution. (JELD23, L14, M15)