Organizational Dynamics ∗

This paper provides a dynamic general equilibrium framework to investigate how organizations change the modes to govern transactions over time and how such organizational change leads to endogenous process of economic development. We show that the agency problem becomes less serious when the economy is developed well so that large market size favors decentralized organizations having more specialization, which in turn actually leads to higher economic development. We then show how different organizational modes endogenously emerge in the same economy and cause endogenous process of economic development.