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.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2700.
Find related papers by JEL classification: D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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