Innovation, Firm Size and Growth in a Centralized Organization

The optimal innovation, firm size, and growth are derived for a centrally controlled firm in which only the entrepreneur evaluates and restores current projects or evaluates and adopts new projects. Current projects are subject to failure (due to entry) and possible obsolescence, while new projects may not be successful. The optimal allocation of attention implies bounds on firm size and that the rate of innovation depends not only on monopoly profits, firm size, and technological opportunity, but also on the probability of obsolescence. The effects of monopoly power and firm size on innovation also depend on the degree of obsolescence.