Organizing Growth

We present a model of endogenous growth in which agents acquire knowl-edge as organizations develop and allocate labor more efficiently. Building up organizations and acquiring the relevant pieces of complementary knowledge, takes time so organizations develop slowly. As the technology is better known and the majority of problems faced in production are well understood, incre-mental knowledge is less and less useful: productivity increases at a decreasing rate. But the depth of expertise accumulated facilitates the appearance of new, radical innovations. Eventually incremental growth slows down sufficiently that agents choose to switch to a new technology, making existing organizations ob-solete. We show that better communication technology increases the long term growth rate of the economy as larger organizations can organize labor and knowledge more efficiently over longer periods. Our model can rationalize the cross-sectional relation between organization and development. It can also help explain the absence of returns to scale in research and the existence, which we document, of large long term technological cycles. ∗The impulse for this paper grew out of several conversations with Philip Aghion, for which we are grateful. We thank Lorenzo Caliendo for excellent research assistance. 1