Working Paper: CEPR ID: DP2700
Authors: David Martimort; Thierry Verdier
Abstract: This Paper analyses the link between the internal organization of firms, their individual life cycle and the whole process of macroeconomic growth. We present a Schumpeterian growth model in which firms face dynamic agency costs. These agency costs are due to the formation of vertical collusions within the organization. To respond to the opportunity of internal collusion, firms go through a whole life cycle, becoming more bureaucratized and less efficient over time. This bureaucratization affects both the intertemporal distribution of profits in a given sector and the distribution of output across sectors. In a general equilibrium model, bureaucratization has two effects: a profitability effect on the return of innovation and a reallocation effect on the skilled labour market. First, we analyse the existence and properties of stationary equilibrium growth. Second, we endogenize the transaction costs of side-contracting and show how the growth rate depends on various organizational parameters of firms.
Keywords: bureaucratization; dynamic collusion; internal organization of the firm; schumpeterian growth
JEL Codes: D92; L22; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bureaucratization (D73) | efficiency (D61) |
| efficiency (D61) | profitability of intermediate sectors (L16) |
| bureaucratization (D73) | profitability of intermediate sectors (L16) |
| bureaucratization (D73) | innovation incentives in R&D sectors (O31) |
| high innovation rates (O39) | mitigate bureaucratization's negative effects (D73) |
| bureaucratization (D73) | overall growth rate (O40) |
| control mechanisms (E61) | growth rate (O40) |
| information processing technologies (L86) | growth rate (O40) |
| bureaucratization (D73) | intertemporal distribution of profits (D33) |
| bureaucratization (D73) | distribution of output across sectors (D39) |