Browsing by study line "Studieinriktningen ekonomisk forskning"

This thesis evaluates the effects of entry on incumbent firms' prices and procedures volume in dental care markets using difference-in-differences regression and administrative data on private dental care visits reimbursed by the Social Insurance Institution of Finland. The entry is considered as a competition increasing shock. The entrant's prices were remarkably low at the time of the entry and the firm was able to acquire a large share of volume in common procedures performed at the market. Thus, the entrant offered a real low-cost alternative to the residents of the Capital Region. I focus on examinations and fillings, which are two of the most common procedures. Patients face switching costs when changing their dental care provider. This means that incumbent firms with locked-in customers might be able to accommodate the entry easier, than without the switching costs. The results show that incumbent firms do not lower their prices in response to the entry by economically significant amount. However, the results suggest that incumbent firms perform less fillings after the entry. The effect is driven by summer months. The pattern where the incumbent firms do not change their prices and lose a share of their turnover to the entrant is consistent with the theoretical switching costs literature.

Despite continuous improvements in treatments, childhood cancers are among the most common causes of death for children in Finland. The cancer treatments are often arduous and have long-lasting effects even beyond the person diagnosed. Estimating these effects is important, since they can affect the cost-effectiveness of many policies. This thesis focuses on estimating the effects of childhood cancer on parental labour market outcomes, especially on the earnings gap between genders. Estimating the causal connection between health and socioeconomic variables is difficult for many reasons. In this thesis, a quasi-experimental method called "staggered differences-in-differences" is employed to solve this problem. In this method, families where cancer is diagnosed are compared to those that are diagnosed at a different time, and this way the true causal effect can be estimated. The thesis used administrative data from all childhood cancer diagnoses in Finland during years 1999-2017. The results show that childhood cancer reduces parents' income significantly. In short run, the effect is around 30% of the income before the diagnosis for mothers and around 7% for fathers. For mothers, the decline in employment is also significant. The welfare state provides support to these families to the extent that the decline in the income after transfers is not as large. The gender earnings difference increases around 20% in the short run, and increases also in families where mother is the main provider in the years before the diagnosis. My results are robust to different checks, including alternative estimators to correct for possible cohort-heterogeneous effects. The previous research is scarce and has provided differing estimates, but the results of this thesis are in line with the most relevant literature. The decline in earnings can be caused by the need to take care of the child, mental health effects or declined accumulation of human capital. While it is hard to suggest policy changes based on these results alone, the current benefits around ill children are short in duration and focused on one person and the results indicate that perhaps a longer benefit scheme distributed more evenly between genders might provide different outcomes.

We consider a so-called principal-agent problem, where our aim is to construct an optimal contract that maximises utilities for the contractor, the principal, and for the effort-exerting party, the agent. In our setting, the time-horizon of the contract is infinite, and the agent receives a continuously paid compensation for exerting effort. Our main goal is to establish a problem introduced in Sannikov (2008) and characterise an optimal contract by restricting the menu of feasible contracts, an approach inspired by Cvitanic et. al. (2018) We begin with an extensive literature review, where we review the continuous-time principal-agent problems and further motivate the scope of this thesis. We start from the notable article Holmström et. al. (1987), and we progress towards the works Williams (2008), Sannikov (2008) and Cvitanic et. al. (2018) Following the review, we construct the problem and lay the mathematical foundations for it. We focus on a new benchmark setting, adapted from Sannikov (2008) and Cvitanic et. al. (2018). We first define the so-called controlled state equation, and construct the canonical probability space. Then, we introduce then impose few assumptions regarding the core concepts, and identify the problems of the agent and the principal and characterise their objective functions. After characterising the problem, we characterise the optimal contract and show that the optimal contract maximises the principal's profit. We characterise the difference function of Sannikov (2008) to the agent's optimisation problem, and then follow Cvitanic et. al. (2018) on the reduction of the problem. The reduction is done by restricting the possible menu of contracts and thus reduce the non-standard problem to a dynamic programming problem. We introduce the corresponding Hamiltonian functionals, together with the value functions to the both principal and the agent. Furthermore, we introduce a family restricted processes, which we show to characterise the optimal contract. We finish with showing that the optimal contract exists even with the notion of retirement. Having completed the main technical contribution, that is, having solved for the optimal contract, we briefly discuss the results and their implications against previous literature. Additionally, we discuss the possible extensions to our research.

This thesis attempts to examine how much a representative consumer per each country is willing to pay to avoid global warming by analysing their welfare gains from having a smoother consumption path. Temperature variations affect economic activity, and consumption is subject to shocks related to global warming. I start by reviewing the economic literature that studied the relationship between temperatures and economic activity. I highlight which are the main effects on the economy that are correlated to rising temperatures and I review the methods that are usually employed by economists to assess environmental damages. I then take a sample of 163 countries and compute the welfare gains for each country for having a smoother consumption path, following the method used by Lucas (2003). To do this, I use country-level household consumption data and I set values for the risk aversion coefficient following the suggestions of the previous economic literature. I repeat the experiment with a smaller sample of 72 countries, this time using country-specific risk aversion coefficients retrieved from Gandelman and Hernández-Murillo (2015). In both cases, I obtain that most of the countries have welfare gains lying in the order of 10^-2 and 10^-3. Using annual temperature data, I test the Spearman correlation coefficient between welfare gains and average temperatures. Although the previous literature stressed the adverse effects of global warming on the economy, I find no significant correlation between these two variables. Countries that are more at risk do not display higher welfare gains than countries with a lower risk of imminent climate damages. To explain my results, I then consider determinants of risk aversion other than temperature and conclude that risk aversion, and consequently the value of welfare gains, can depend on several other factors.

During the recent decades corporate income tax rates have declined. This development may be due to several issues, such as changes in the political environment or increased knowledge of behavioral effects of corporate taxation. One prominent explanation is tax competition. Tax competition is defined as noncooperative tax regime setting by independent governments such that the tax policy decisions affect the allocation of mobile tax base(s) among different countries. Tax regimes include the statutory tax rates as well as the tax bases and other parts of corporate tax systems. Tax competition is an important phenomenon for multiple reasons. Lower tax rates may imply issues in financing the public sector. On the other hand, it makes some of the issues of the international corporate tax system visible. This thesis reviews theories of tax competition. The aim is to provide an analysis of the different aspects of tax competition and review how different institutional structures are modelled in tax competition framework. Studying the main implications of tax competition is an important part of the thesis. The first formal models of tax competition consider a world economy which consists of many identical countries. Firms maximize profits and governments maximize utility of the representative agent. It is shown that tax competition drives tax rates to an inefficiently low level. Later tax competition research develops both the institutional set -up of tax competition and modelling frameworks applied to study it. The results of this thesis imply that the result of the first tax competition models is strong. Tax competition drives corporate tax rates to an inefficiently low level even if the key assumptions are relaxed. On the other hand, some important extensions imply that corporate income tax rates are in an optimal level even in presence of tax competition. However, in most cases tax competition is harmful since it drives corporate income tax rates to inefficiently low levels. On the other hand, tax competition literature also provides other results. Considering sequential tax competition instead of simultaneous shows that tax rates may in equilibrium be higher if one country acts as a leader. This may be one explanation why tax rates have not declined to zero as the famous race to the bottom hypothesis suggests. Tax competition literature also provides analysis on the effect of tax havens. These results are, however, more confusing. Tax competition can decrease welfare or be welfare improving. This thesis reviews important aspects of tax competition literature and focuses on the institutional set-up of theories of tax competition. There remain some gaps in the literature. Some institutional set-ups are not analysed in the tax competition context. On the other hand, literature focusing on the empirics of tax competition is scarce. One of the important aspects of tax competition is how to limit it. This issue has a great amount of current attention in the work of OECD, for example.

This thesis studies possible factors associated with the earnings differences between Finnish and Swedish immigrants at the beginning of the 20th century in the United States. Economics literature has provided multiple explanations for the economic assimilation of immigrants. Fundamentally immigrant assimilation in economic theory is seen as a process of country-specific human capital accumulation. Many factors, however, can affect this process. In this thesis, I will test whether the earnings differences between Finnish and Swedish immigrants were associated with their location choices, size of the immigrant communities, English skills and linguistic distance between immigrant’s mother tongue and English. In addition, I test whether even within industries, the earnings differences persist and whether in addition to Swedes, Finns also differ from other Nordic immigrants. To do this, I will use a longitudinal dataset of 28 621 European male immigrants observed in 1900, 1910 and 1920 and use pooled OLS to estimate the earnings differences of Finnish and Swedish immigrants at different stages of their migration period. First, I find that at the time of arrival or at most 5 years after it, Finnish immigrants earn more than otherwise comparable Swedish immigrants. After more than 30 years in the United States, however, Finns earn substantially less than their Swedish counterparts. Also, not only did the Finns diverge from the earnings of the Swedes with the time spent in the United States, but also from their initial level of earnings. I then find that controlling for location choices and the size of the immigrant communities slightly reduce the earnings gap between long-term Finnish and Swedish immigrants. Differences in English skills, on the other hand, are not found to be associated with the earnings differences. Instead, I find that long-term Finnish and Swedish immigrants have almost equal probabilities of knowing English and that Finnish immigrants accumulate language skills at a substantial rate after arrival. The negative earnings gap among long-term Finnish and Swedish immigrants persists even within industries. However, although remaining negative, controlling for industry fixed effects reduces the earnings gap by over 50 %, suggesting that a large fraction of the negative earnings gap was associated with Finnish immigrants being active in low-paying industries. Finally, I find that the similar pattern applies not only to Swedish immigrants but also to other Nordic immigrants. At the time of arrival, Finns seem to earn more than otherwise comparable Nordic immigrants but after more than 30 years in the United States, Finns earn substantially less than their Nordic counterparts.

The electricity sector plays a central role in climate change mitigation and adaptation policies. At the same time, it is also affected by the climate. The ongoing clean energy transition has made the link between electricity sector and weather even stronger since the increasing intermittent renewable energy production is increasingly weather dependent and cannot respond to abrupt changes in demand. Therefore, understanding how the electricity demand reacts to the changes in the climate is crucial for designing policies that support sustainable transition to the net zero economy. The thesis sheds light on these challenges and studies the effects of temperature on the intra-day electricity load in four European countries, Finland, Germany, France and Spain. The research questions are how temperature affects the hourly electricity consumption and whether these effects are different at different hours of the day. The sample consists of data on aggregate hourly electricity load and hourly population weighted temperatures over a period of over 10 years. The hour-specific effects of temperature on electricity load are estimated with a linear regression model of high-frequency fixed effects that allows credible identification of the short-run effects. However, the approach can not address the role of changing behavioural, economic or technological factors which are left for future work. The effects are estimated for each country separately, which also allows to capture the heterogeneity between countries. The results confirm the finding in the previous literature of the non-linear relationship between temperature and electricity load. In particular, electricity load is estimated to be more sensitive to temperature at the extreme temperatures and a comfort zone at which the electricity consumption is estimated to be insensitive to changes in temperatures is found for all countries. However, in Finland and France, the temperature effects are more pronounced at the cold temperatures, whereas in Germany and Spain, the effects are more symmetric. Moreover, in France, Germany and Spain, a comfort zone is estimated to be at colder temperatures in the morning and to shift to warmer temperatures in the afternoon. This implies that, at temperatures approximately between 10℃ and 20℃, heating is more sensitive to changes in temperature at the afternoon hours whereas cooling is more sensitive to changes in temperature at the early morning hours in the three countries. In Finland, the effects of temperature are relatively constant between hours. In conclusion, the results imply that temperatures contribute to the changing dynamics in the electricity sector, affecting both the intra-day variability and the level of the electricity consumption. However, the role of temperatures in these dynamics is relatively moderate.