Abstract
In this article we extend the agent-based model of firms' formation and growth proposed in [4]. In [4] the firms' creation, expansion or contraction results from the interaction of heterogeneous utility maximizers.
While the original model was able to replicate the power law distribution in the firms' sizes agents in the model set their utility maximizing effort levels completely freely and undetected. This led to the emergence of free riding and influenced the overall dynamics of the model.
Therefore we decided to extend the original model by introducing the monitoring which is seen in the economic literature, besides for example the proper incentive scheme ([18]), as a possible way how to make employees work harder. Our motivation is to compare the extended model with both to the original case without monitoring and empirical data about firms' sizes distribution.