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The Agency Cost of Internal Collusion and Schumpeterian Growth

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  • Martimort, David
  • Verdier, Thierry

Abstract

This paper analyses the link between the internal organization of the firm and the growth process. We present a Schumpeterian growth model in which monopoly firms face agency costs due to collusion between managers inside the organization. These costs affect incentives to invest and the rate of innovation in the economy. When collusion is self-enforcing, higher growth and more creative destruction shortens in turn the time horizon of colluding agents in the organization and makes internal collusion more difficult to sustain. We analyse this two-way mechanism between growth and agency problems and show how the transaction costs of side-contracting within the firm and the growth rate of the economy are simultaneously derived. Copyright 2004, Wiley-Blackwell.
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  • Martimort, David & Verdier, Thierry, 2003. "The Agency Cost of Internal Collusion and Schumpeterian Growth," IDEI Working Papers 170, Institut d'Économie Industrielle (IDEI), Toulouse.
  • Handle: RePEc:ide:wpaper:638
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    References listed on IDEAS

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    1. Patrick Francois & Joanne Roberts, 2003. "Contracting Productivity Growth," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 59-85.
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    Cited by:

    1. Christian Wey & Pio Baake & Ulrich Kamecke, 2005. "Neue Märkte unter dem neuen Rechtsrahmen: Endbericht ; Forschungsprojekt im Auftrag der Deutsche Telekom AG," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 6, number pbk6.
    2. Ottaviano, Gianmarco, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers.
    3. Mathias Thoenig & Thierry Verdier, 2010. "A macroeconomic perspective on Knowledge Management," Journal of Economic Growth, Springer, vol. 15(1), pages 33-63, March.

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