I am looking for a way to repeat an object around a circle and at the same time shrink the object for every repeat.

It's easy to repeat an object by placing it outside the circle

* select rotate tool
* hold alt and click in the center of the circle
* set the angle in the popup window
* ctrl d to repeat.

But how can I achieve the same effect while also shrinking the size of the object?

I've also tried the: effect -> Distort & Transform -> Transform tool, but didn't manage to create this effect.