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The Internal Organization of the Firm, Transaction Costs, and Macroeconomic Growth

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  • Martimort, David
  • Verdier, Thierry

Abstract

This article analyzes the links between the internal organization of the firm and macroeconomic growth. We present a Schumpeterian growth model in which firms face agency costs due to the existence of asymmetries of information and the formation of vertical collusions inside those firms. To respond to the threat of collusion, optimal collusion-proof incentive contracts depend on the efficiency of collusive side contracting within organizations. Collusion affects therefore the firms' profitability, the incentives to innovate, and, finally, the stationary equilibrium growth rate of the economy. On the other hand, when the growth rate is small, the prospects of long-term relationships within firms increase the agents' incentives to invest in a better collusive technology. We then discuss the two-way relationships between the structure of internal transaction costs, organizational technologies, and macroeconomic growth. Copyright 2000 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 5 (2000)
Issue (Month): 4 (December)
Pages: 315-40

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Handle: RePEc:kap:jecgro:v:5:y:2000:i:4:p:315-40

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Web page: http://www.springerlink.com/link.asp?id=102931

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Cited by:
  1. Francois, P. & Lloyd-Ellis, H., 2003. "Co-movement, Capital and Contracts: 'Normal' Cycles Through Creative Destruction," Discussion Paper 2003-62, Tilburg University, Center for Economic Research.

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