The Rise and Evolution of the Innovative Firm: A Tale of Technology, Market Structure, and Managerial Incentives
Pietro Peretto, Duke University
We develop a dynamic general equilibrium model of the transition from an economy with small owner-operated businesses to an economy where part of the control over large-scale organizations is delegated to managers. We model managerial delegation as a principal-agent problem: the owner must offer an incentive contract that makes managers exert effort. The choice of whether and when to delegate managerial tasks, and how many managers to employ is dictated by which organizational form yields the higher rate of return to innovative investments. Owners trade-off the benefit from improved efficiency with the cost of forgoing a share of the gross cash flows as managerial compensation. In equilibrium, the owner-managed organization prevails early on when market size is small; delegation becomes profitable only when market size is sufficiently large to guarantee the viability of the incentive contract. Upon delegation, the economy experiences a productivity growth acceleration fueled by faster innovation. However, the emergence of the managerial class is not hard-wired into the theory: equilibria where firms remain small and owner-managed are possible.
Zoom link to join online
https://unu-merit-eu.zoom.us/j/84009911100?pwd=UzBmaWl2MzVvNisyMGU5aWRnUm9WZz09
About the speaker
Pietro Peretto is a professor in the Department of Economics at Duke University. His research focuses on industrial organization, technological change, and other aspects of macroeconomics. His studies have explored international trade, growth and innovation, market structure, corporate taxation, industrial organization, development and the environment, research and development, and more; his analyses tend to use the endogenous growth theories. He has been publishing research in leading academic journals for nearly two decades. His latest research projects have to do with resource scarcity, sustainable growth, and the role of regulation.
Venue: Room 0.18, Boschstraat 24, Maastricht (UNU-MERIT) and Online
Date: 30 May 2024
Time: 12:00 - 13:00 CEST