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The Internal Organization of the Firm, Transaction Costs and Macroeconomic Growth

By David Martimort and Thierry Verdier


This paper analyzes the links between the internal organization of the firm and macroeconomic growth. We present a Schumpeterian growth model in which firms face agency costs due to the existence of asymmetries of information and the formation of vertical collusions inside those firms. To respond to the threat of collusion, optimal collusion-proof incentive contracts depend on the efficiency of collusive side contracting within organizations. Collusion affects therefore the firms’ profitability, the incentives to innovate and, finally, the stationary equilibrium growth rate of the economy. On the other hand, when the growth rate is small, the prospects of long term relationships within firms increase the agents ’ incentives to invest in a better collusive technology. We then discuss the two-ways relationships between the structure of internal transaction costs, organizational technologies and macroeconomic growth

Topics: Bureaucratization, Schumpeterian Growth, Dynamic Collusion, Internal Organization of the Firm
Year: 2000
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