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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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Suggested Citation

  • 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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    Cited by:

    1. Hiller, Victor, 2018. "Self-control and the rise and fall of factory discipline," Journal of Development Economics, Elsevier, vol. 133(C), pages 187-200.
    2. Mathias Thoenig & Thierry Verdier, 2010. "A macroeconomic perspective on Knowledge Management," Journal of Economic Growth, Springer, vol. 15(1), pages 33-63, March.
    3. Stephane Straub, 2011. "Infrastructure and Development: A Critical Appraisal of the Macro-level Literature," Journal of Development Studies, Taylor & Francis Journals, vol. 47(5), pages 683-708.
    4. Ottaviano, Gianmarco, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers.
    5. 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, Enero-Abr.
    6. Liu, Taoxiong & Liu, Zhuohao, 2022. "A growth model with endogenous technological revolutions and cycles," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    7. Kohei Daido & Ken Tabata, 2010. "Organizational Modes within Firms and Productivity Growth," Discussion Paper Series 59, School of Economics, Kwansei Gakuin University, revised Sep 2010.

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