University of Helsinki
Abstract. The extraction of carbon energy contributes to the global stock of pollution, increasing the risk of welfare-damaging environmental disaster. The governments of the countries educate workers as scientists. Oligopolists produce goods by workers and carbon energy. R&D Firms improve effciency by scientists to supplant incumbent oligopolists through competition, which generates economic growth. In this setup, an international central planner can decentralize the social optimum by setting a precautionary tax on emissions before the occurrence of the disaster. That tax hampers pollution, but speeds up economic growth. The socially optimal level of the tax is derived.
(2017) Emission Permit Trading with Global Externality Problems. Tapio Palokangas, HECER, University of Helsinki.
Abstract. I examine a set of heterogeneous countries where firms produce goods from emitting inputs and fixed resources. Emissions cause global pollution that harms everyone’s welfare. There is a benevolent international regulator that grants country-specific emission permits. It is shown that welfare decreases, if the countries are allowed to trade in emission permits. If the sellers of permits are on the average richer than the buyers, then the regulator grants too much, and if poorer, too little permits from the welfare point of view.
LINK: First IIASA Summer Workshop on Green Growth Modeling
(2017) Optimal Taxation,Endogenous Fertility and Emissions-Induced Mortality. Tapio Palokangas, HECER, University of Helsinki.
Abstract. I examine optimal taxation in an economy where output is produced from labor and capital by technologies that differ in their emission intensity and relative demand for capital and labor. Families save in capital and determine fertility. Emissions increase, but public services (e.g. sanitation, medical care) decreases mortality. Solving the differential game between the social planner and the families leads to the following result. Only if dirty technology is capital intensive relative to clean technology, a wealth tax is optimal. Only if dirty technology is labor intensive enough relative to clean technology, a child-rearing subsidy is optimal.
- Paper presented at the International Workshop “Economic Growth, Macroeconomic Dynamics and Agents’ Heterogeneity” in the European University at St Petersburg, May 25-26, 2017.
- Paper presented in IIASA, Laxenburg/Vienna, Austria, July 25, 2017.
(2017) Labor Market Regulation, International Trade and Footloose Capital. IZA Discussion Paper No. 10468
Abstract. I examine the effects of globalization in countries where the employed workers support the unemployed and the governments control wages by regulating the workers’ relative bargaining power. I use a general oligopolistic equilibrium model of two integrated countries with two inputs: labor and potentially footloose capital. National competition for jobs by labor market deregulation creates a distortion with suboptimal wages. The mobility of capital aggravates that distortion by increasing the wage elasticity of labor demand, which decreases wages and welfare even further. The delegation of labor market regulation to an international agent eliminates that distortion, increasing wages and aggregate welfare.
The preliminary version of this paper has been presented in the following conferences:
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- European Trade Study Group (ESTG), Helsinki, September 8-10, 2016
- International Conference on Dynamics, Growth and International Trade (DEGIT), Paris, September 7-8, 2017
(2016) Fertility, Mortality and Environmental Policy. IZA Discussion Paper No. 10465 (co-authored with Ulla Lehmijoki)
This article examines pollution and environmental mortality in an economy where fertility is endogenous and output is produced from labor and capital by two sectors, dirty and clean. An emission tax curbs dirty production, which decreases pollution-induced mortality but also shifts resources to the clean sector. If the dirty sector is more capital intensive, then this shift increases labor demand and wages. This, in turn, raises the opportunity cost of rearing a child, thereby decreasing fertility and the population size. Correspondingly, if the clean sector is more capital intensive, then the emission tax decreases the wage and increases fertility. Although the proportion of the dirty sector in production falls, the expansion of population boosts total pollution, aggravating mortality.
Paper presented in the following conferences:
- “Systems Analysis: Modelling and Control”, Krasovskiy Institute of Mathematics and Mechanics, Ekaterinburg, Russia, October 2016
- The 6th Viennese Vintage Workshop, Vienna University of Technology, Austria, December 2016
(2015) The Welfare Effects of Globalization with Labor Market Regulation. IZA Discussion Paper No. 9412.
Abstract. I examine how globalization affects wages and welfare in a general equilibrium model of international trade with partly oligopolistic markets. Globalization is modeled as reducing trade costs or opening up shielded sectors to trade. There is a national or international common agency that determines minimum wages for the oligopolists, either directly or through supporting labor unions. The lobbies of employers and labor unions influence that agency, relating their prospective political contributions to the latter’s decisions. Both a shift from national to international regulation and a decrease in trade costs promote aggregate welfare, but decrease open-sector relative wages.
Earlier version “Globalization, Union Influence and Self-Interested Labor Market Regulators”, presented in the DEGIT XX Conference in Geneva, Switzerland, 2015
(2015) Emission Permit Management with a Self-Interested Regulator. HECER Discussion Paper No. 390.
Abstract. Heterogeneous countries produce goods from fixed resources and emitting inputs that cause simultaneous localized and global externality problems (e.g. smog and global warming). Since there is no benevolent international government, the issue of emission permits is delegated to an international self-interested regulator whom the countries try to influence. A single country can exceed its emission permits with a fixed penalty. In this setup, this article shows that emission trading is welfare diminishing, because it grants less (more) permits to countries with relatively clean (dirty) localized technology.
(2014) Sustainable Growth: Modelling, Issues and Policies. IIASA Interim Report IR-14-019 (co-authored with Unurjargal Nyambuu and Willi Semmler)
This document is a literature review of sustainable growth. Because there are many definitions of sustainable growth, we use the following one that is very common in economics. Economic growth is ‘sustainable’, if it meets the needs of the present generations without compromising the ability of future generations to meet their own needs. This concerns both the availability of resources for future generations and the environmental impacts of current decisions on future activities.
Section I, we consider issues and policy measures related to the resource problem. We introduce dynamic models in which exhaustible resources are used in production and apply them to several cases: an open economy, a backstop technology and the relationship of climate and economic growth. We also examine a transition of dirty to clean technology and the consequences of this to public finance and intergenerational equity.
In Section II, we consider macroeconomic performance with natural resources: origins and effects of resource abundance, patterns of development for world prices, resource depletion, peak production, “Dutch disease” and external debt. If economic growth affects environment, then the abatement of environmental damages must be included into the discussion of sustainable economic growth.
In Section III, we present resource extraction and the environmental impacts of economic activities in the context of multiple decision makers. This introduces strategic interactions of agents, e.g. firms, households and nations. We consider collusion as well as Cournot, Bertrand games and discuss on diverse micro and macro policies that consider incentive compatibility.
In the Appendix, we introduce a finite horizon procedure called Nonlinear Model Predictive Control (NMC) by which the models presented in this survey can be numerically solved.
(2014) The Political Economy of Labor Market Regulation with R&D. IZA Discussion Paper No. 8147
Abstract. Consider an economy where oligopolists employ skilled and unskilled labour in production and escape production costs by devoting skilled labour to R&D. Employers and workers bargain over wages and lobby the local policy maker that determines union bargaining power. The main results are the following. When the elasticity of factor substitution exceeds the elasticity of product substitution, the labour markets are deregulated. When labour market policy is left at the local level in an otherwise integrated economy, the likelihood of labour market deregulation increases. This result explains the past development of declining union bargaining power in wage settlement.
Earlier version: The Political Economy of Labour Market Regulation with R&D. HECER Discussion Paper No. 375 (2013)
Presented in:
DEGIT Conference, Nasville (TN), USA
13th Viennese Workshop on Optimal Control and Dynamic Games, Wien, Austria
(2014) Land Reforms, Status and Population Growth. IZA Discussion Paper No 8054. (co-authored with Ulla Lehmijoki)
In this document, we consider the effects of a land reform on economic and demographic growth by a family-optimization model with sharecropping, endogenous fertility and status
seeking. We show that tenant farming is the major obstacle to escaping the Malthusian trap with high fertility and low productivity. A land reform provides peasant families higher returns for their investments in land, encouraging them to increase their productivity of land rather than their family size. This decreases fertility and increases productivity in agriculture in the short and long runs. The European demographic history provides supporting evidence for this.