This project aims at a first serious attempt to understand differences in forms of business organization between Japan and the U.S., using a consistent framework of modern economics. One of the most significant issues facing large business organizations is centralization versus decentralization: Delegation of authority to lower tiers of hierarchy is inevitable, but how is the optimal degree of delegation determined and implemented? Furthermore, this centralization/decentralization issue is strongly related with boundaries of the firm, i.e., which activities are brought within the firm and which are kept outside. Casual observation suggests that large Japanese firms experience difficulty in creating workforce that specializes in narrow activities and delegating responsibility to that body, and hence they often "hive off'' those activities to subsidiaries or other group firms. On the other hand, American firms are said to attain more decentralization internally. The project studies these two aspects of organizations simultaneously by constructing a theoretical model, and then tests its implications by collecting data on delegation within and across organizations in Japan and the U.S.