[We study the time consistency of optimal monetary policy in a framework akin to the one in [12, Ch. 1] but we assume away lump sum taxation--all taxes are distortionary. Our major result is that under perfect foresight (as defined in [8, 23]) optimal monetary policy is bound to be time inconsistent. The paper is closely related to the previous works of Auernheimer [2], and Kydland and Prescott [15].]

We show that limitation of firm size caused by loss of control across hierarchic levels depends crucially on the nature of the supervision process. If the employees cannot identify the times at which their performance is monitored, there is no limit imposed on the firm size by the heights of the hierarchical structure. "Loss of control" may impose such a limit if the employees are aware of the times at which they are being monitored. The analysis also shows the rationale for hierarchical wage differentials for essentially identical employees.

We show that limitation of firm size caused by loss of control across hierarchic levels depends crucially on the nature of the supervision process. If the employees cannot identify the times at which their performance is monitored, there is no limit imposed on the firm size by the heights of the hierarchical structure. "Loss of control" may impose such a limit if the employees are aware of the times at which they are being monitored. The analysis also shows the rationale for hierarchical wage differentials for essentially identical employees.