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Counterproductive Incentives in the Business Compensation Scheme

The Norwegian government has designed a business compensation scheme to help firms avoid bankruptcies and keep operating during the corona crisis.

In this note, Jørgen J. Andersen (BI) and Jon H. Fiva (BI) illustrate key features of the compensation scheme -- in particular its large discontinuity -- and show some preliminary analyses based on data covering March 2020 (with compensation payments starting April 20). 

At the time of writing, 19,190 firms have received in total NOK 889 million in compensation. We find no evidence that the discontinuity in the distribution scheme has lead firms to manipulate reported turnover in the March data. In March, firms were yet unaware of the compensation scheme and, hence, the only way to maneuver across the threshold would be to cheat. In April and May, however, the scope for manipulation increases. We are analyzing the data as they come in and have created a set of visualizations that are regularly updated at here.  

Link to the paper here 

Posted by Daniel Spiro,

Uppsala University

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