Eirik Gaard Kristiansen

Risk Taking in Selection Contests

We study selection contests in which the strategic variable is degree of risk rather than amount of effort. The selection efficiency of such contests is examined. We show that the selection efficiency of a contest may be improved by limiting the competition in two ways; a) by having a small number of contestants, and b) by restricting contestant quality. The results may contribute to the understanding of phenomena like promotion processes in large firms, selection of fund managers and research tournaments.

R&D in the Presence of Network Externalities: Timing and Compatibility

Two rival firms decide on the time of R&D and whether the new products should be compatible. I show that network externalities may induce the firms to introduce new incompatible technologies early, which is socially harmful as the R&D costs increase, and de facto standardization becomes less likely. Compared with the equilibrium outcome, both firms may gain by delaying the introduction of incompatible technologies. By agreeing on common standards before product introduction, entry is delayed and profit may increase. An ex post optimal standardization policy may increase the incentives for early product introduction and consequently be an undesirable policy ex ante.

Paying for Staying: Managerial Contracts and the Retention Motive

Talented managers may leave the firm in order to work elsewhere. Focusing on the portability of managers-resources, we develop a model in which managerial compensation is designed to prevent inefficient departure. The model rationalizes the widespread use of flat salaries in combination with performance-vesting stock options and is consistent with observed differences in compensation contracts across individuals, firms, industries, and countries.

R&D in markets with network externalities

Abstract This paper studies the consequences of network externalities on R&D rivalry between an incumbent firm and a potential entrant. In the model, all differences between the R&D projects chosen in market equilibrium and the socially best projects are solely due to network externalities. From a welfare perspective, the incumbent chooses a too risky and the entrant a too certain R&D project. Rothschild and Stiglitzs mean preserving spread criterion is used as a measure of risk. Adoption of a new standard is more likely in equilibrium than in the social optimum.

Licensing and Innovation with Imperfect Contract Enforcement

Licensing promotes technology transfer and innovation, but enforcement of licensing contracts is often imperfect. We model contract enforcement as a game with perfect information but probabilistic enforcement and explore the implications of weak enforcement on the design of licensing contracts, the conduct of firms and market performance. An upstream firm develops a technology that it can license to downstream firms using a fixed fee and a per-unit royalty. Strictly positive per-unit royalties maximize the licensor’s profit if competition among licensees limits joint profits. With imperfect enforcement, the licensor lowers variable royalties to reduce cheating. Although imperfect contract enforcement reduces the profits of the licensor, weak enforcement lowers prices, increases downstream innovation, and in some circumstances can increase total economic welfare.

Life‐Cycle Patterns of Interest‐Rate Mark‐Ups in Small‐Firm Finance

We derive empirical implications from a stylized theoretical model of bankborrower relationships. Banks’ interest rate markups are predicted to follow a life-cycle pattern over the borrowing firms’ age. Due to endogenous bank monitoring by competing banks, borrowing firms initially face a low markup, thereafter an increasing markup due to informatonal lock-in until it falls for older firms when lock-in is resolved. By applying a large sample of small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric information problems have a more pronounced life-cycle pattern of interest rate markups. Additionally, we examine the effects of concentrated banking markets on interest markups. Results indicate that markups are mainly driven by asymmetric information problems and not by concentration. However, we find weak evidence that bank market concentration matters for old firms.

What determines banks' market power? Akerlof versus Herfindahl

We introduce a model analyzing how asymmetric information problems in a bank-loan market may evolve over the age of a borrowing firm. The model predicts a life-cycle pattern for banks’interest rate markup. Young firms pay a low or negative markup, thereafter the markup increases until it falls for old firms. Furthermore, the pattern of the life-cycle depends on the informational advantage of the inside bank and when more dispersed borrower information yields fiercer bank competition. By applying a new measure of the informational advantage of inside banks and a large sample of small Nor-wegian firms, we find empirical support for the predicted markup pattern. We disentangle effects of asymmetric information (Akerlof effect)from effects of a concentrated banking market(Herfindahl effect). Our results indicate that the interest rate markups are not influenced by bank market concentration.