The Agency Cost of Internal Collusion and Schumpeterian Growth
This paper analyses the link between the internal organization of the firm andthe growth process. We present a Schumpeterian growth model in whichmonopoly firms face agency costs due to collusion between managers insidethe organization. These costs affect incentives to invest and the rate ofinnovation in the economy. When collusion is self-enforcing, higher growth andmore creative destruction shortens in turn the time horizon of colludingagents in the organization and makes internal collusion more difficult tosustain. We analyse this two-way mechanism between growth and agencyproblems and show how the transaction costs of side-contracting within thefirm and the growth rate of the economy are simultaneously derived. Copyright The Review of Economic Studies Limited, 2004.
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Volume (Year): 71 (2004)
Issue (Month): 4 (October)
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