Economics

 

Recent Submissions

  • Mukminov, Rinat (Svenska handelshögskolan, 2015-01-28)
    In the period from 2007 to 2009 the world experienced the deepest financial crisis since the Great Depression. The world economy was in the most severe recession since the Second World War. The financial crisis was followed by a debt crisis in the euro area, which is still far from being resolved. The world economy is yet to recover from the crisis. The financial crises are recurring phenomena. The financial crisis of 2007-2009 is in many ways similar to the previous crises. It has been argued that banks’ poor screening incentives at the peak of the business cycle are one of the main causes of the recurring crises. Bank screening literature argues that in boom times, when the majority of loan applications are good, the price competition between the banks intensifies, leading to lower returns from screening loan applicants. As a consequence, screening standards decline and many bad loans end up on the bank balance sheets. Defaults of the bad loans lead to a deterioration of the banks’ loan portfolios, which causes credit crunches and bank crises. There is also an emerging finance literature arguing that a lower cost of funds, such as a lower cost of deposits, cheaper credit in the interbank market, a lower discount rate, encourages the banks to take excessive risks. Excessive risk-taking by the banks can also lead to a bank crisis. These two approaches explain excessive bank risk-taking from two different points of view: the former one from the point of view of bank revenues, while the latter approach explains excessive risk-taking from the point of view of bank costs. The aim of this dissertation is to build a bridge between these two approaches. This dissertation contributes to the screening literature by explicitly introducing the cost of funds into a bank screening model. This is novel, as most previous bank screening literature has assumed the deposit market to be fully competitive with zero interest rate, thus ignoring the impact of the deposit interest rate on bank screening incentives. This dissertation also extends the literature, which explores the effects of costs of funds on the bank risk-taking, by explicitly modelling the banks’ investment in screening of potential loan applicants.
  • Saxén, Frans (Svenska handelshögskolan, 2013-10-22)
    Much of the analysis of industrial organization implicitly assumes that firms sell directly to final consumers. However, many firms do not sell directly to the final consumers, but rather use intermediaries, such as wholesalers and retailers to distribute their products. The presence of such intermediaries affects significantly market outcomes. In particular, the contracts between manufacturers and retailers may significantly affect market outcomes, e.g. volumes and prices. Characteristic for these contracts is that they may contain vertical restraints, restrictions on what the retailers may do once they have acquired the products for resell. Another characteristic feature of these contracts is that they are typically devised by sophisticated contracting parties, who have strategic objectives. The reason for manufacturers, or upstream firms to impose vertical restraints on retailers, or downstream firms is that the actions of the downstream firms affect the upstream firm’s profits. While vertical restraints may affect the profitability of the contracting parties, they may also affect other agents, such as consumers and suppliers. In this dissertation I focus on three distinct aspects of vertical relations. I look at how providers of payment cards affect competition between retailers, through the no surcharge rule; how suppliers can expand their output by financing the establishment of new retailers; and how buyer alliances can extract surplus from suppliers through the use of market share contracts. Common to these essays is the strategic behavior by agents on one level affecting market outcomes at another vertical level.
  • Butt, Hilal Anwar (Svenska handelshögskolan, 2013-10-17)
    Asset pricing as a subject is a quest to rationalize different prices associated with different assets that are on offer in financial markets. It does so, using a set of assumptions to mathematically model investors’ behavior, over a set of alternative choices, each leading to an uncertain future outcome. Under this scenario, investors make a choice of foregoing a part of today’s consumption for tomorrow in a way that marginal utility of loss of consumption today is equal to marginal gain in utility tomorrow. This equivalence theoretically determines asset prices. Therefore, there is only one prediction in asset pricing: asset returns must line up with the marginal rate of substitution (MRS) that they provide to the investors. This thesis is an attempt to map in particular the theoretical MRS with empirically available proxies of liquidity risk for small-sized developed markets. In the first essay a number of asset pricing models are tested for the Finnish market. Generally, the results differ in comparison with other markets. For the small Finnish market the significance and size of many risk factors change once equally or value weighted portfolio returns are used. However, the Carhart (1997) model is by far the best performing model for both equally and value weighted portfolios. Once the Capital Asset Pricing model is conditioned with a January dummy the model becomes significant for value weighted portfolios, whereas conditioned with an illiquidity factor, returns are better explained for equally weighted portfolios. The other essays summarize the effect of illiquidity for the Finnish and Nordic equity markets. The proposition that illiquidity matters for illiquid markets is sufficiently fulfilled. In one article we find that of the total return differential between the most illiquid and liquid assets, up to 92% is explained by the liquidity risk factor. For the U.S market the corresponding percentage is 17. Further, the illiquidity factor explains more than the CAPM model. There is also ample evidence that the single most successful illiquidity factor has explanatory capacity that is comparable to that of the three or four factor models of Fama and French (1993) and Carhart (1997) respectively. Finally, illiquidity appears to be important for all the Nordic equity markets. However, this evidence is not revealed using commonly proposed measures of illiquidity. Only when the proposed measure of illiquidity accounts for non-trading intervals and speed of trading, it is found that liquidity risk is linked with expected returns in the Nordic markets.
  • Schollenberg, Linda (Svenska handelshögskolan, 2013-03-19)
    Environmental protection, sustainability, and the combat against climate change are central topics for today’s societies. For reaching policy targets in any of these areas, it will be crucial to achieve far-ranging behaviour change in many respects. Given that a substantial part of environmental problems can be traced back to consumption patterns, involving citizens and impacting on consumer behaviour are of major importance. There is a growing need to design policy programmes which have the potential to succeed in setting the right incentives. Environmental and sustainability labelling is one of the policy instruments increasingly employed to meet this objective. However, to date the market shares of products with environmental or sustainability labels remain low and stated positive consumer attitudes towards labelled products do not consistently translate into buying behaviour. So what are the main obstacles preventing efficient labelling and the factors impacting negatively on the demand side? Contributing to answering this central question is one of the main objectives of this thesis. It consists of three self-contained essays which study various aspects of the potential impact of labelling on the market for food products with a sustainability or ethical background. The first paper takes up the topic of the pricing of labelled products and applies a hedonic pricing framework to the case of Fair Trade labelled coffee in Sweden. The second paper is concerned with the attitude-behaviour gap with regard to purchasing organic food and focuses on various determinants of demand for products with an organic label. The third paper focuses on the analysis of consumer choice in the presence of the growing multitude of environmental and ethical labels used for marking products with a respective background. The results obtained in this thesis present highly relevant empirical results and are of interest to policymakers and scholars alike as they do not only focus on policy advice but also stimulate the academic debate. Its analysis of the impact the existing multiplicity of labels has on consumers contributes to a research front which has not received appropriate levels of attention yet. Findings point to a need to modify the current set-up in the field of environmental, sustainability, and ethical labelling. Focusing on consumers’ needs in trying to make labelling schemes work efficiently and lowering consumer evaluation costs as much as possible should be given high priority in the design of policy measures. Public sector involvement will continue to be of key importance.
  • Soininen, Heidi (Svenska handelshögskolan, 2006-06-06)
    This thesis analyzes how matching takes place at the Finnish labor market from three different angles. The Finnish labor market has undergone severe structural changes following the economic crisis in the early 1990s. The labor market has had problems adjusting from these changes and hence a high and persistent unemployment has followed. In this thesis I analyze if matching problems, and in particular if changes in matching, can explain some of this persistence. The thesis consists of three essays. In the first essay Finnish Evidence of Changes in the Labor Market Matching Process the matching process at the Finnish labor market is analyzed. The key finding is that the matching process has changed thoroughly between the booming 1980s and the post-crisis period. The importance of the number of unemployed, and in particular long-term unemployed, for the matching process has vanished. More unemployed do not increase matching as theory predicts but rather the opposite. In the second essay, The Aggregate Matching Function and Directed Search -Finnish Evidence, stock-flow matching as a potential micro foundation of the aggregate matching function is studied. In the essay I show that newly unemployed match mainly with the stock of vacancies while longer term unemployed match with the inflow of vacancies. When aggregating I still find evidence of the traditional aggregate matching function. This could explain the huge support the aggregate matching function has received despite its odd randomness assumption. The third essay, How do Registered Job Seekers really match? -Finnish occupational level Evidence, studies matching for nine occupational groups and finds that very different matching problems exist for different occupations. In this essay also misspecification stemming from non-corresponding variables is dealt with through the introduction of a completely new set of variables. The new outflow measure used is vacancies filled with registered job seekers and it is matched by the supply side measure registered job seekers.
  • Juselius, Mikael (Svenska handelshögskolan, 2007-06-05)
    Mikael Juselius’ doctoral dissertation covers a range of significant issues in modern macroeconomics by empirically testing a number of important theoretical hypotheses. The first essay presents indirect evidence within the framework of the cointegrated VAR model on the elasticity of substitution between capital and labor by using Finnish manufacturing data. Instead of estimating the elasticity of substitution by using the first order conditions, he develops a new approach that utilizes a CES production function in a model with a 3-stage decision process: investment in the long run, wage bargaining in the medium run and price and employment decisions in the short run. He estimates the elasticity of substitution to be below one. The second essay tests the restrictions implied by the core equations of the New Keynesian Model (NKM) in a vector autoregressive model (VAR) by using both Euro area and U.S. data. Both the new Keynesian Phillips curve and the aggregate demand curve are estimated and tested. The restrictions implied by the core equations of the NKM are rejected on both U.S. and Euro area data. These results are important for further research. The third essay is methodologically similar to essay 2, but it concentrates on Finnish macro data by adopting a theoretical framework of an open economy. Juselius’ results suggests that the open economy NKM framework is too stylized to provide an adequate explanation for Finnish inflation. The final essay provides a macroeconometric model of Finnish inflation and associated explanatory variables and it estimates the relative importance of different inflation theories. His main finding is that Finnish inflation is primarily determined by excess demand in the product market and by changes in the long-term interest rate. This study is part of the research agenda carried out by the Research Unit of Economic Structure and Growth (RUESG). The aim of RUESG it to conduct theoretical and empirical research with respect to important issues in industrial economics, real option theory, game theory, organization theory, theory of financial systems as well as to study problems in labor markets, macroeconomics, natural resources, taxation and time series econometrics. RUESG was established at the beginning of 1995 and is one of the National Centers of Excellence in research selected by the Academy of Finland. It is financed jointly by the Academy of Finland, the University of Helsinki, the Yrjö Jahnsson Foundation, Bank of Finland and the Nokia Group. This support is gratefully acknowledged.
  • Kar, Ashim Kumar (Svenska handelshögskolan, 2010-11-01)
    Microfinance institutions (MFIs) are constrained by double bottom-lines: meeting social obligations (the first bottom-line) and obtaining financial self-sufficiency (the second bottom-line). The proponents of the first bottom-line, however, are increasingly concerned that there is a trade-off between these two bottom-lines—i.e., getting hold of financial self-sufficiency may lead MFIs to drift away from their original social mission of serving the very poor, commonly known as mission drift in microfinance which is still a controversial issue. This study aims at addressing the concerns for mission drift in microfinance in a performance analysis framework. Chapter 1 deals with theoretical background, motivation and objectives of the topic. Then the study explores the validity of three major and related present-day concerns. Chapter 2 explores the impact of profitability on outreach-quality in MFIs, commonly known as mission drift, using a unique panel database that contains 4-9 years’ observations from 253 MFIs in 69 countries. Chapter 3 introduces factor analysis, a multivariate tool, in the process of analysing mission drift in microfinance and the exercise in this chapter demonstrates how the statistical tool of factor analysis can be utilised to examine this conjecture. In order to explore why some microfinance institutions (MFIs) perform better than others, Chapter 4 looks at factors which have an impact on several performance indicators of MFIs—profitability or sustainability, repayment status and cost indicators—based on quality-data on 353 institutions in 77 countries. The study also demonstrates whether such mission drift can be avoided while having self-sustainability. In Chapter 5 we examine the impact of capital and financing structure on the performance of microfinance institutions where estimations with instruments have been performed using a panel dataset of 782 MFIs in 92 countries for the period 2000-2007. Finally, Chapter 6 concludes the study by summarising the results from the previous chapters and suggesting some directions for future studies.
  • Ismail, Abdirashid A. (Svenska handelshögskolan, 2010-06-02)
    In Somalia the central government collapsed in 1991 and since then state failure became a widespread phenomenon and one of the greatest political and humanitarian problems facing the world in this century. Thus, the main objective of this research is to answer the following question: What went wrong? Most of the existing literature on the political economy of conflict starts from the assumption that state in Africa is predatory by nature. Unlike these studies, the present research, although it uses predation theory, starts from the social contract approach of state definition. Therefore, rather than contemplating actions and policies of the rulers alone, this approach allows us to deliberately bring the role of the society – as citizens – and other players into the analyses. In Chapter 1, after introducing the study, a simple principal-agent model will be developed to check the logical consistence of the argument and to make the identification of causal mechanism easier. I also identify three main actors in the process of state failure in Somalia: the Somali state, Somali society and the superpowers. In Chapter 2, so as to understand the incentives, preferences and constraints of each player in the state failure game, I in some depth analyse the evolution and structure of three central informal institutions: identity based patronage system of leadership, political tribalism, and the Cold War. These three institutions are considered as the rules of the game in the Somali state failure. Chapter 3 summarises the successive civilian governments’ achievements and failures (1960-69) concerning the main national goals, national unification and socio-economic development. Chapter 4 shows that the military regime, although it assumed power through extralegal means, served to some extent the developmental interest of the citizens in the first five years of its rule. Chapter 5 shows the process, and the factors involved, of the military regime’s self-transformation from being an agent for the developmental interests of the society to a predatory state that not only undermines the interests of the society but that also destroys the state itself. Chapter 6 addresses the process of disintegration of the post-colonial state of Somalia. The chapter shows how the regime’s merciless reactions to political ventures by power-seeking opposition leaders shattered the entire country and wrecked the state institutions. Chapter 7 concludes the study by summarising the main findings: due to the incentive structures generated by the informal institutions, the formal state institutions fell apart.
  • Kempa, Michal (Svenska handelshögskolan, 2009-09-11)
    The liquidity crisis that swept through the financial markets in 2007 triggered multi-billion losses and forced buyouts of some large banks. The resulting credit crunch is sometimes compared to the great recession in the early twentieth century. But the crisis also serves as a reminder of the significance of the interbank market and of proper central bank policy in this market. This thesis deals with implementation of monetary policy in the interbank market and examines how central bank tools affect commercial banks' decisions. I answer the following questions: • What is the relationship between the policy setup and interbank interest rate volatility? (averaging reserve requirement reduces the volatility) • What can explain a weak relationship between market liquidity and the interest rate? (high reserve requirement buffer) • What determines banks' decisions on when to satisfy the reserve requirement? (market frictions) • How did the liquidity crisis that began in 2007 affect interbank market behaviour? (resulted in higher credit risk and trading frictions as well as expected liquidity shortage)
  • Jiang, Yanqing (Svenska handelshögskolan, 2009-08-18)
    Growth and Convergence: The Case of China Since the initiation of economic reforms in 1978, China has become one of the world’s fast-growing economies. The rapid growth, however, has not been shared equally across the different regions in China. The prominent feature of substantial differences in incomes and growth rates across the different Chinese regions has attracted the attention of many researchers. This book focuses on issues related to economic growth and convergence across the Chinese regions over the past three decades. The book has eight chapters. Apart from an introduction chapter and a concluding chapter, all the other chapters each deal with some certain aspects of the central issue of regional growth and convergence across China over the past three decades. The whole book is organized as follows. Chapter 1 provides an introduction to the basic issues involved in this book. Chapter 2 tests economic growth and convergence across 31 Chinese provinces during 1981-2005, based on the theoretical framework of the Solow growth model. Chapter 3 investigates the relationship between openness to foreign economic activities, such as foreign trade and foreign direct investment, and the regional economic growth in the case of China during 1981-2005. Chapter 4, based on data of 31 Chinese provinces over the period 1980-2004, presents new evidence on the effects of structural shocks and structural transformation on growth and convergence among the Chinese regions. Chapter 5, by building up an empirical model that takes account of different potential effects of foreign direct investment, focuses on the impacts of foreign direct investment on China’s regional economic performance and growth. Chapter 6 reconsiders the growth and convergence problem of the Chinese regions in an alternative theoretical framework with endogenous saving behavior and capital mobility across regions. Chapter 7, by building up a theoretical model concerning comparative advantage and transaction efficiency, focuses on one of the potential mechanisms through which China achieves its fast economic growth over the past few decades. Chapter 8 concludes the book by summarizing the results from the previous chapters and suggesting directions for further studies.
  • Tåg, Joacim (Svenska handelshögskolan, 2008-11-04)
    The growth of the information economy has been stellar in the last decade. General-purpose technologies such as the computer and the Internet have promoted productivity growth in a large number of industries. The effect on telecommunications, media and technology industries has been particularly strong. These industries include mobile telecommunications, printing and publishing, broadcasting, software, hardware and Internet services. There have been large structural changes, which have led to new questions on business strategies, regulation and policy. This thesis focuses on four such questions and answers them by extending the theoretical literature on platforms. The questions (with short answers) are: (i) Do we need to regulate how Internet service providers discriminate between content providers? (Yes.) (ii) What are the welfare effects of allowing consumers to pay to remove advertisements from advertisement-supported products?(Ambiguous, but those watching ads are worse off.) (iii) Why are some markets characterized by open platforms, extendable by third parties, and some by closed platforms, which are not extendable? (It is a trade-off between intensified competition for consumers and benefits from third parties) (iv) Do private platform providers allow third parties to access their platform when it is socially desirable? (No.)