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Firms formation and growth in the model with heterogeneous agents and monitoring



In this article we extend the agent-based model of firms’ formation and growth proposed in [4]. In [4] the firms‘ creation, expansion or contraction results from the interaction of heterogeneous utility maximizers. While the original model was able to replicate the power law distribution in the firms’ sizes agents in the model set their utility maximizing effort levels completely freely and undetected. This led to the emergence of free riding and influenced the overall dynamics of the model. Therefore we decided to extend the original model by introducing the monitoring which is seen in the economic literature, besides for example the proper incentive scheme ([18]), as a possible way how to make employees work harder. Our motivation is to compare the extended model with both to the original case without monitoring and empirical data about firms‘ sizes distribution.

Suggested Citation

  • Peter Marko & Petr Svarc, 2008. "Firms formation and growth in the model with heterogeneous agents and monitoring," Working Papers IES 2008/31, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2008.
  • Handle: RePEc:fau:wpaper:wp2008_31

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    References listed on IDEAS

    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Jeffery Carpenter & Samuel Bowles & Herbert Gintis, 2006. "Mutual Monitoring in Teams: Theory and Experimental Evidence on the Importance of Reciprocity," Middlebury College Working Paper Series 0608, Middlebury College, Department of Economics.
    3. Bohn, Henning, 1987. "Monitoring multiple agents : The role of hierarchies," Journal of Economic Behavior & Organization, Elsevier, vol. 8(2), pages 279-305, June.
    4. Robert Axtell, 1999. "The Emergence of Firms in a Population of Agents," Working Papers 99-03-019, Santa Fe Institute.
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    More about this item


    monitoring; firms‘ size; power law; agent-based model; simulation; heterogeneous agents;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions

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