Approximation of forward curve models in commodity markets with arbitrage-free finite-dimensional models

In this paper, we show how to approximate Heath–Jarrow–Morton dynamics for the forward prices in commodity markets with arbitrage-free models which have a finite-dimensional state space. Moreover, we recover a closed-form representation of the forward price dynamics in the approximation models and derive the rate of convergence to the true dynamics uniformly over an interval of time to maturity under certain additional smoothness conditions. In the Markovian case, we can strengthen the convergence to be uniform over time as well. Our results are based on the construction of a convenient Riesz basis on the state space of the term structure dynamics.     

Disability Retirement in a Welfare State

The increasing number of disability pensioners may put a strain on the welfare state. In this paper, we try to assess the effect of financial incentives on disability entrance. A sample of Norwegians on long-term sick leave at the beginning of 1989 is examined as of the end of 1989, and the exit routes are studied in a multinomial logit model. The results indicate that the incentive effects of wages are larger than the disincentive effects of benefits. Furthermore, there is no evidence that having a "subjective" diagnosis affects the probability of becoming a disability pensioner.
JEL Classification : H 55; I 18; J 26     

Does Poaching Distort Training?

We analyse the efficiency of the labour market outcome in a competitive search equilibrium model with endogenous turnover and endogenous general human capital formation. We show that search frictions do not distort training decisions if firms and their employees are able to coordinate efficiently, for instance, by using long-term contracts. In the absence of efficient coordination devices there is too much turnover and too little investment in general training. Nonetheless, the number of training firms and the amount of training provided are constrained optimal, and training subsidies therefore reduce welfare.     

Merger negotiations and the toehold puzzle

The substantial control premium typically observed in corporate takeovers makes a compelling case for acquiring target shares (a toehold) in the market prior to launching a bid. Moreover, auction theory suggests that toehold bidding may yield a competitive advantage over rival bidders. Nevertheless, with a sample exceeding 10,000 initial control bids for US public targets, we show that toehold bidding has declined steadily since the early 1980s and is now surprisingly rare. At the same time, the average toehold is large when it occurs (20%), and toeholds are the norm in hostile bids. To explain these puzzling observations, we develop and test a two-stage takeover model where attempted merger negotiations are followed by open auction. With optimal bidding, a toehold imposes a cost on target management, causing some targets to (rationally) reject merger negotiations. Optimal toeholds are therefore either zero (to avoid rejection costs) or greater than a threshold (so that toehold benefits offset rejection costs). The toehold threshold estimate averages 9% across initial bidders, reflecting in part the bidder's opportunity loss of a merger termination agreement. In the presence of market liquidity costs, a threshold of this size may well induce a broad range of bidders to select zero toehold. As predicted, the probability of toehold bidding decreases, and the toehold size increases, with the threshold estimate. The model also predicts a relatively high frequency of toehold bidding in hostile bids, as observed. Overall, our test results are consistent with rational bidder behavior with respect to the toehold decision.     

Taxes and the global allocation of capital

Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital—or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue.     

Performance Pay and Adverse Selection*

It is well known in personnel economics that firms may improve the quality of their workforce by offering performance pay. We analyze an equilibrium model where worker productivity is private information and show that the firms’ gain from worker self‐selection may not be matched by a corresponding social gain. In particular, the equilibrium incentive contracts are excessively high‐powered, thereby inducing the more productive workers to exert too much effort and increasing agency costs stemming from the misallocation of effort.     

Dealing with globalisation: the Nordic countries and inward FDI, 1900–1939

This article examines the different ways in which the four Nordic countries chose to regulate the inflow of foreign direct investments (FDI). By studying the laws regulating foreign ownership, as well as their implementation, it becomes clear that the four countries followed a pragmatic and tolerant policy towards inward FDI, but that the resource rich countries actively tried to prevent foreign ownership of their most important natural resources. The article also shows how the countries’ stricter policy on foreign ownership in the early twentieth century was not a casualty of World War I, but more predominantly a reaction to the increasing international economic integration before the war.     

Resource interaction in inter-organizational networks: Foundations, comparison, and a research agenda

The focus of this article is on discussing the foundations, conceptual development, and implications of resource interaction in inter-organizational networks. The article conceptualizes and classifies resources before discussing how resource interfaces enable to utilize, manage, and change resources. In doing so it provides a set of basic principles as to how resources interact at a network level, or how firms combine, develop, mobilize, and manage resources over time. This is in strong contrast to a focus on the acquisition, accumulation, and exchange of resources by the firm. The article further provides a comparison with two other research streams, the Resource-Based view (RBV) and the Service-Dominant logic (S-D logic), in order to better position this perspective on inter-organizational resource interaction. It concludes by discussing an agenda for further research.     

Do Negotiated Agreements Lead to Cost Efficiency?

Received October 16, 2000; revised version received August 2, 2001