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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.

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Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2008/31.

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Length: 26 pages
Date of creation: Nov 2008
Date of revision: Nov 2008
Handle: RePEc:fau:wpaper:wp2008_31
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  1. Carpenter, Jeffrey P. & Bowles, Samuel & Gintis, Herbert, 2006. "Mutual Monitoring in Teams: Theory and Experimental Evidence on the Importance of Reciprocity," IZA Discussion Papers 2106, Institute for the Study of Labor (IZA).
  2. Robert Axtell, 1999. "The Emergence of Firms in a Population of Agents," Working Papers 99-03-019, Santa Fe Institute.
  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. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
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