(2013) International Biodiversity Management with Technical Change. Published in “Green Growth and Sustainable Development”, edited by J. Crespo Cuaresma, T. Palokangas and A. Tarasyev. Springer Verlag.

I consider the case where the conservation of land yields utility through biodiversity, firms improve their efficiency by in-house R&D and a large number of jurisdictions establish a self-interested central planner for biodiversity management. I compare the regulation of land use with direct subsidies for conserved land and obtain following results. Regulation promotes biodiversity and economic growth. Because revenue-rasing taxes hamper growth, the replacement of regulation by subsidies decreases biodiversity, growth and welfare. Applied to NATURA 2000 in the EU, this suggests that regulation without any budget may be the appropriate degree of authority for the Commission.

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(2011) Optimal Patent Length and Breadth in an Economy with Creative Destruction and Non-Diversifiable Risk. Journal of Economics 102 (2011): 1-21.

Abstract. In this paper, I examine the optimal patent shape in an economy in which R&D firms innovate and imitate, households face non-diversifiable risk and there is externality in production and R&D. With non-diversifiable risk, a household’s consumption and investment decisions are interlinked. This economy contains industries of two kinds: monopoly industries with an innovator only, and duopoly industries with an innovator and an imitator. I define patent length as the expected time in which an innovation is imitated, and patent breadth as the innovator’s profit share in an industry after a successful imitation. The government can control patent length by the requirements for accepting a substitute for a patented good, and patent breadth by imposing compulsory licensing and royalties for the patentee after a successful imitation. I show that the stronger the externality in production relative to R&D is, the slower the optimal growth rate, the larger the optimal proportion of duopoly industries, and the longer and narrower the optimal patent.

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(2010) Economic Growth with Political Lobbying and Wage Bargaining. Control Applications of Optimization. Volume 7. Part 1.

Abstract. This paper examines an economy with a large number of industries, each producing a different good. Technological change follows a Poisson process where firms improve their productivity through investment in R&D. The less there are firms in the economy or the more they can coordinate their actions, the higher their profits. Labor is used in production or R&D. All workers are unionized and their wages depend on relative union bargaining power. If this power is high enough, then there is involuntary unemployment. Both workers and firms lobby the central planner of the economy which affects firms’ and unions’ market power. The main findings of the paper can be summarized as follows. The central planner can increase its welfare either (a) by
increasing the level of income or (b) by speeding up economic growth. If (a) is more effective than (b), then the central planner eliminates union power altogether to have full employment. On the other hand, if (b) is more effective than (a), then the central planner supports labor unions to promote cost-escaping R&D.

Control Applications of Optimization. Volume 7. Part 1. IFAC-Papers OnLine (DOWNLOAD)

Paper presented in IFAC/CAO ’09_Annual_Conference, May 6-8, 2009, Jyväskylä, Finland

(2009) Dynamic Systems, Economic Growth and the Environment. Edited by J. Crespo Cuaresma, T. Palokangas and A. Tarasyev. Springer Verlag.

This book focuses on the sustainability of economic growth in a changing environment, under the effects of global warming, dwindling energy resources, and technological change. It also provides explanations for significant fluctuations in countries’ growth rates. The results are derived from historical evidence on economic growth in relation to environmental policy, technological change, development of transport infrastructure, population issues, and environmental mortality. The rigorous analysis of theoretical and applied aspects reveals important policy implications for optimal investment, optimal timing of abatement activities, and for an optimal balancing of economic growth with environmental concerns.

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(2009) Investment, Expropriation, and Unionization. Economics of Governance 10: 27-42

Abstract. This paper examines the strategic interaction between a foreign direct investor, a labour union and a self-interested government in the following cases: (a) a competitive labour market, (b) bargaining over wages and employment, or (c) bargaining over wages only. The investor and the union lobby the government for taxation and labour market regulation, and the investor uses its control rights to protect its investment against expropriation. The main findings are as follows. In cases (a) and (b) above, the government can use taxation and labour market regulation as a non-distorting vehicle to press the investor’s profits to the minimum. Hence, union rights and right-to-manage bargaining (c) predict higher profits for foreign direct investment.

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(2009) Integration, Labor Market Regulation, Lobbying, and Technological Change. IZA Discussion Paper No. 4096. IZA, Germany.

Abstract. This paper examines an economic union where oligopolistic firms produce by skilled and unskilled labor and do in-house R&D by skilled labor. The planner of the union accepts new members to the union, regulates the labor market through a minimum wage for unskilled labor and supports firms by taxation. Firms and workers lobby the planner for prospective policy. It is shown that in the political equilibrium small unions regulate the labor market but do not support firms, while large unions deregulate the labor market and support firms. Journal of Economic Literature: F15, J50, O40.

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This paper is presented in

1. the HECER_Political_Economy_Conference, March 13-14, 2009, Helsinki, Finland

2. the IFAC 2011 Conference,  August 28 – September 2, 2011, Milan, Italy

(2009) International Emission Policy with Lobbying and Technological Change. Published in "Dynamic Systems, Economic Growth and the Environment", edited by J. Crespo Cuaresma, T. Palokangas and A. Tarasyev. Springer Verlag.

Abstract. I examine emission policy in a union of countries when production in any country incurs emissions that pollute all over the union, but efficiency in production is improved by research and development (R&D). I compare four cases: Laissez-faire, Pareto optimal policy, and the case of a self-interested central planner that decides on nontraded or traded emission quotas. I show that with nontraded quotas, the growth rate is socially optimal, but welfare sub-optimal. Trade in quotas speeds up growth from the initial position of laissez-faire, but slows down growth from the initial position of nontraded quotas.

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(2009) Optimal Economic Growth with a Random Environmental Shock (Co-authored by Sergey Aseev, Konstantin Besov and Simon-Erik Ollus). Published in "Dynamic Systems, Economic Growth and the Environment", edited by J. Crespo Cuaresma, T. Palokangas and A. Tarasyev. Springer Verlag.

Abstract. The government in a small open economy uses both an old “dirty,” or “polluting,” technology and a new “clean” technology simultaneously. However, because of climate change, it should take into account that at some stage in the future it will be penalized for production based on the old technology. In this paper, pollution is alleviated through international agreements that restrict polluting activities. The government’s incentives to invest in cleaner technologies are based on productivity of the technology and randomly increasing abatement costs for pollution in future. In contrast to the Schumpeterian model of creative destruction, both technologies can be used simultaneously. The technologies are subject to AK production functions. Assuming that the exogenous environmental shock follows a Poisson process, we use Pontryagin’s maximum principle to find the optimal investment policy. We find conditions under which a rational government should invest all its resources in one technology, while the other is moderately run down, as well as conditions under which it should divide the investments between the technologies in a certain ratio.

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(2008) Competition and Product Cycles with Non-Diversifiable Risk. Journal of Economics 94: 1-30.

Abstract. This paper analyzes the growth effects of competition in a product-cycle model where R&D firms both innovate and imitate and households are subject to non-diversifiable risk. I prove that product market competition promotes growth when the initial level of competition is high enough. In contrast to the earlier product-cycle models with diversifiable risk, I show also the following. Some positive profits are necessary for technological change. The larger the proportion of industries subject to price competition, the slower economic growth.

Accepted for publication in Journal of Economics.
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