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The Agency Cost of Internal Collusion and Schumpeterian Growth

Listed author(s):
  • Martimort, David
  • Verdier, Thierry

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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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 170.

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Date of creation: 2003
Publication status: Published in The Review of Economic Studies, vol. 71, n°4, décembre 2004, p. 1119-1141.
Handle: RePEc:ide:wpaper:638
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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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