Monopolies Life Cycle, Bureaucratization and Schumpeterian Growth
This paper analyzes the links between the internal organization of firms and 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, getting more bureaucratized and less efficient over time. Weak creative destruction in the economy facilitates informal collusion inside firms and exacerbates bureaucratization. As bureaucratization affects the firms profitability and the return to innovation, stationary equilibrium growth depends in turn on the efficiency of collusive side-contracts within firms.
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