Trond E. Olsen

Occurrence of goitre during lithium treatment.

Of 330 patients given lithium for recurrent manic-depressive disorder 12 developed goitre after treatment periods of five months to two years. All the patients remained clinically euthyroid. Pressure symptoms necessitated subtotal thyroidectomy in two patients. In 9 out of 10 patients with goitre, and in two out of seven without goitre study with radioactive iodine showed abnormal findings in iodine metabolism. Discontinuance of lithium led to disappearance of goitres, while thyroid metabolism returned to normal. Thyroxine or desiccated thyroid produced shrinkage of the gland in spite of continued lithium medication.

Spillovers and international competition for investments

Abstract Two jurisdictions compete to attract shares of the investment budget of a large multinational enterprise, whose investments confer positive spillovers on national firms. The firm has private information about its efficiency and about spillovers. It is shown that the firm may be harmed by tax competition. Relative to a cooperative tax agreement, tax competition may induce excessive investments in the country where the positive spillover effects are lowest. Also, with sufficiently asymmetric spillovers, investments under competition will be excessively spread out, not properly concentrated to the country where spillovers would be largest.

Strategic Tax Competition; Implications of National Ownership

Two jurisdictions compete to capture the rents of a large multinational enterprise (MNE) which invests locally and which is partly owned by local investors. The MNE contributes to local welfare by tax payments and dividends, and it has private information about the efficiency of the operations in the two localisations. It is shown that the distortions in the MNEs real investment portfolio are determined by a trade-off between fiscal externalities and equity externalities, and that investments in the case of strategic tax competition may be lower than in the co-operative case. Ownership matters, and we show how the firm may reduce its overall tax payments by influencing the distribution of owner shares between investors in the two countries.

Endogenous Verifiability and Relational Contracting

Principal-agent models usually invoke the strong assumption that the parties know ex ante for sure whether a variable is verifiable or not. In this paper we assume that only the probability of verification is known, and that this probability is endogenously determined. We analyze a principal-agent relationship where the verifiability of the agents output is determined by the principals investment in drafting an explicit contract. The model is well suited for analyzing the relationship between explicit contracting, legal courts, trust and relational contracting. In particular we show how trust - established through repeated interaction - and legal courts may induce contractual incompleteness and lower the level of relationship specific investments.

The Rise of Individual Performance Pay

Existing empirical evidence suggests that individual performance pay is more prevalent in human‐capital‐intensive industries. We introduce a model that can contribute to explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peer‐dependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold up, the lower is the implementable degree of peer‐dependent incentives. In a setting with complementary tasks, we show that although team‐based incentives are optimal if agents are dispensable, it may be costly, and, in fact, suboptimal, to provide team incentives when the agents become indispensable.

Technology adoption, learning spillovers, and the optimal duration of patent-based monopolies

Abstract The paper analyses an often overlooked aspect of the patent system, namely, that a monopoly franchise for production of a new good could lead to a second-best welfare optimum event when there was no future prospect of inventions being induced by the patent. It is shown that a paten may improve economic welfare relative to a regime of competitive supply when there are learning externalities or ‘spillovers’ from experience in the process of production. Comparative statics show that stronger learning effects at low levels of experience tend to strengthen the case for ex post grant of a monopoly franchise.

Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption

Corruption opportunities arise when a principal delegates enforcement or audit authority to a supervisor. The supervisor may then strike a deal with the agent she is supposed to monitor and conceal important information from the principal. Corruption imposes a constraint on governance and appears therefore to be harmful for the principal. The authors show that this need not be the case. In their model, the prospect of corruption can make the principal better off. The reason is that the collusion possibility generates dynamic effects which, in cases where only limited intertemporal commitments can be made, may be beneficial for the principal. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Limited intertemporal commitment and job design

Abstract The paper shows that some of the guidelines for job design that emerge from a static analysis of the multitask agency problem can be overturned in a dynamic model with limited commitment. Static analyses have shown that it is optimal to assign workers sole responsibility for tasks, and to allocate them tasks which are as homogeneous as possible with respect to the ease of measuring performance. Our dynamic analysis demonstrates that it can, instead, be optimal to make workers jointly responsible for tasks, and to make their task portfolios as similar to one another, but as internally diverse, as possible.

Intertemporal common agency and organizational design: How much decentralization?

Abstract In common agency, where one agent contracts with several principals, to what extent should the principals cooperate and centralize provision of incentives? If the agency is over contract complements — where an increase in activity for one principal increases the marginal value of contracting with other principals — complete centralization seems optimal, since this internalizes all externalities. We show that this intuition is not generally valid for dynamic agency situations. For although centralization provides more accurate incentives to the agent, it also aggravates the ratchet effect, and this negative effect may dominate. The optimal degree of decentralization is discussed and partly characterized.

On optimal timing of investment when cost components are additive and follow geometric diffusions

Abstract The paper gives a partial characterization of the optimal stopping rule for a problem with reward function g(t, x) = e−rt(x1 − x2 − ··· − xn), where x1,…, xn follow geometric Brownian motions. The characterization takes the form of a simple and operational sufficient condition for when it is optimal to stop (invest). It is further shown that the optimal value function for the problem at hand is convex in the state variables, and that this fact has some interesting implications for comparative static results.