Organizational Modes within Firms and Productivity Growth

Kohei Daido and Ken Tabata

No 59, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper develops a simple growth model with moral hazard contracting to examine the interactions between the organizational mode of firms and economic productivity growth. The organizational mode of firms differs in terms of the degree to which decisions of R&D investment are delegated to a manager. We show that the market size restricts the extent of delegation with respect to R&D, which in turn determines the productivity growth rate of the economy. We then show that there exist multiple equilibria: gpartial decentralization equilibrium h with a low growth rate and gfull decentralization equilibrium h with a high growth rate. Finally, we study the effects of social capital and competition on equilibrium organizational modes and show that, under some parametric conditions, these factors induce more decentralized organization and higher productivity growth while lowering the risk of the economy converging to a poverty trap.

Keywords: Centralization and Decentralization; Moral Hazard; Social Capital; Multiple Equilibria; Economic Growth; Competitive Policy (search for similar items in EconPapers)
JEL-codes: D86 L16 L22 O32 O40 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-09, Revised 2010-09
New Economics Papers: this item is included in nep-bec and nep-fdg
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