Vertical Integration and Information Technology Investment in the Insurance Industry

In this paper, we examine whether frictions created by differences in firm bound-aries affect the speed with which firms adopt new Information Technology. Us-ing a rich dataset on organizational characteristics and Internet investment by over 100 firms in the insurance industry, we show that vertical integration in dis-tribution has a significant impact on the speed with which insurers adopt con-sumer 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. Fur-thermore, vertical integration has no affect on the adoption of Internet technolo-gies, such as basic access, that are not used in distribution. (JELD23, L14, M15) 1.