University of Helsinki
Abstract. Optimal population policy is examined in the following setup. Families invest in capital, spend on health care and determine their number of children. Firms produce output from labor, capital and pollutants. Pollution increases, but private and public health care decrease mortality dynamically, with lags. Our main findings are the following. A marginal increase in public health care improves welfare as long as it diminishes the mortality rate more than that in private health care. The government can decentralize the social optimum by a parental tax on newborns and a Pigouvian tax on pollutants. Private health care should not be taxed.
Public Policy, Footloose Capital, and Union Influence. Review of International Economics 2020. Vol. 28 (4), 976-991.
Abstract. This document sets up a unionized general oligopolistic equilibrium model of countries, where capital is footloose and governments maximize utilitarian welfare. When capital owners have weak influence on public policy, there is unemployment and the governments compete for jobs, causing a distortion with suboptimal wages. Then globalization—as characterized by a decrease in impediments to international investment—increases the wage elasticity of capital flight, decreasing wages and increasing employment. This benefits the capital owners and the unemployed workers getting a job, but harms the other workers. International coordination of public policy alleviates these consequences of globalization.
Emission Permit Trading with a Self-Interested Regulator. Environmental Economics and Policy Studies. 21 (2019): 183-196.
Abstract. I examine the welfare effects of emission permit trading in an economy where the use of energy in production generates welfare-harming emissions, there is a regulator that sets industry-specific emission permits and the industries influence the regulator by paying political contributions. I show that policy with nontraded emission permits establishes aggregate production efficiency. Emission permit trading hampers efficiency and welfare by increasing the use of emitting inputs in dirty and decreasing that in clean industries.
DOI 10.1007/s10018-019-00236-8
Optimal Taxation with Endogenous Fertility and Health-Damaging Emissions. IFAC PapersOnLine 51 (2018), issue 32, 79-83
Abstract. Output is produced from labor and capital by technologies that differ in their emission intensity and relative capital intensity. Aggregate emissions decrease every individual’s health, but each individual can invest its own health. Population grows by the difference of fertility and exogenous mortality. Labor is used in production or child rearing. I construct a differential game where the benevolent government is a leader that determines taxes and subsidies, while the representative family is a follower that saves in capital and decides on its number of children. The main results are as follows. Without government intervention, population increases or decreases indefinitely. Capital should be taxed, if dirty technology, and subsidized, if clean technology is relatively capital intensive. Child rearing should be taxed, if dirty technology is relatively capital intensive or mildly labor intensive.
(2016) Land Reforms and Population Growth. Portuguese Economic Journal 15: 1-15 (co-authored with Ulla Lehmijoki)
One of the greatest puzzles in demographic history is why in the rich and urbanized England, fertility declined much later than in the poor and rural France. We consider the effects of a land reform on demographic growth by a family-optimization model where relative per capita wealth generates social status and welfare. We show that tenant farming is the major obstacle to escaping the Malthusian trap with high fertility and low productivity. A land reform provides peasants with higher returns for their investments, inducing them to increase their productivity and status rather than their family size. Consequently, the population growth rate slows down, but the productivity of land increases.
(2016) Regulation versus Subsidies in Conservation with a Self-Interested Policy Maker. Environmental Economics and Policy Studies, 19 (2016): 183-196.
Abstract. This article examines the following case. A set of countries produce goods from labor, government input and natural resources. Because the conservation of natural resources in any country yields utility (e.g., through biodiversity) in every country, and because there is no benevolent international government, a resident of the countries is chosen as the regulator to whom conservation policy is delegated. The countries influence the regulator by their political contributions. In this common agency setup, the following result is proven: as long as the minimum conservation standards are implemented, conservation subsidies are welfare decreasing, involving excessive conservation. This suggests that there should be no “co-financing” for designated conservation sites in the EU NATURA 2000 project.
(2014) Optimal Capital Taxation, Labour Unions, and the Hold-Up Problem. Labour : Review of Labour Economics and Industrial Relations. 28 (2014): 359–375.
Abstract. This document examines optimal capital taxation with wage-setting labour unions when the government taxes consumption, labour, and capital. The results are as follows. If unions can commit themselves to particular wages for a long period, then there is no hold-up problem. Otherwise, the hold-up problem creates a positive link from capital accumulation to the wage. The optimal labour subsidy is positive and greater in the presence than in the absence of the hold-up problem. The optimal capital subsidy is zero in the absence, but positive in the presence of the hold-up problem.
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(2011) Optimal Growth in a Two-Sector Economy facing an Expected Random Shock (co-authored with Sergei Aseev, Konstantin Besov and Simon-Erik Ollus). Trudy Inst. Mat. i Mekh. UrO RAN 17: 271–299.
We develop an optimal growth model of an open economy that uses both an old (“dirty” or “polluting”) technology and a new (“clean”) technology simultaneously. A planner of the economy expects the occurrence of a random shock that increases sharply abatement costs in the dirty sector. Assuming that the probability of an exogenous environmental shock is distributed according to the exponential law, we use Pontryagins maximum principle to find the optimal investment and consumption policies for the economy.
ISSN 0134-4889
(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.
(2010) Trade, Population growth, and the Environment in Developing Countries. Journal of Population Economics 23: 1351-1370 (co-authored with Ulla Lehmijoki)
We examine pollution in a developing country where fertility is endogenous and wealth increases welfare through status. When the country has defective environmental laws, it has a comparative advantage in capital-intensive “dirty” goods. Gains from trade due to trade liberalization then increase income and boost population growth. With strong incentives to save, they also stimulate investment, which hampers population growth. Because population growth crowds out labor supply, production of capital-intensive dirty goods first increases and then decreases. This yields a typical environmental Kuznets path: pollution increases at the earlier stages but decreases at the later stages of development.