Valuation of reduced eutrophication in the Gulf of Finland : Choice experiment with attention to heterogeneous and discontinuous preferences and respondent uncertainty

Eutrophication of the Baltic Sea is a serious problem. This thesis estimates the benefit to Finns from reduced eutrophication in the Gulf of Finland, the most eutrophied part of the Baltic Sea, by applying the choice experiment method, which belongs to the family of stated preference methods. Because stated preference methods have been subject to criticism, e.g., due to their hypothetical survey context, this thesis contributes to the discussion by studying two anomalies that may lead to biased welfare estimates: respondent uncertainty and preference discontinuity. The former refers to the difficulty of stating one s preferences for an environmental good in a hypothetical context. The latter implies a departure from the continuity assumption of conventional consumer theory, which forms the basis for the method and the analysis. In the three essays of the thesis, discrete choice data are analyzed with the multinomial logit and mixed logit models. On average, Finns are willing to contribute to the water quality improvement. The probability for willingness increases with residential or recreational contact with the gulf, higher than average income, younger than average age, and the absence of dependent children in the household. On average, for Finns the relatively most important characteristic of water quality is water clarity followed by the desire for fewer occurrences of blue-green algae. For future nutrient reduction scenarios, the annual mean household willingness to pay estimates range from 271 to 448 and the aggregate welfare estimates for Finns range from 28 billion to 54 billion euros, depending on the model and the intensity of the reduction. Out of the respondents (N=726), 72.1% state in a follow-up question that they are either Certain or Quite certain about their answer when choosing the preferred alternative in the experiment. Based on the analysis of other follow-up questions and another sample (N=307), 10.4% of the respondents are identified as potentially having discontinuous preferences. In relation to both anomalies, the respondent- and questionnaire-specific variables are found among the underlying causes and a departure from standard analysis may improve the model fit and the efficiency of estimates, depending on the chosen modeling approach. The introduction of uncertainty about the future state of the Gulf increases the acceptance of the valuation scenario which may indicate an increased credibility of a proposed scenario. In conclusion, modeling preference heterogeneity is an essential part of the analysis of discrete choice data. The results regarding uncertainty in stating one s preferences and non-standard choice behavior are promising: accounting for these anomalies in the analysis may improve the precision of the estimates of benefit from reduced eutrophication in the Gulf of Finland.

Development and testing of allometric equations for estimating above-ground biomass of mixed-species environmental plantings

To quantify the impact that planting indigenous trees and shrubs in mixed communities (environmental plantings) have on net sequestration of carbon and other environmental or commercial benefits, precise and non-biased estimates of biomass are required. Because these plantings consist of several species, estimation of their biomass through allometric relationships is a challenging task. We explored methods to accurately estimate biomass through harvesting 3139 trees and shrubs from 22 plantings, and collating similar datasets from earlier studies, in non-arid (>300mm rainfallyear-1) regions of southern and eastern Australia. Site-and-species specific allometric equations were developed, as were three types of generalised, multi-site, allometric equations based on categories of species and growth-habits: (i) species-specific, (ii) genus and growth-habit, and (iii) universal growth-habit irrespective of genus. Biomass was measured at plot level at eight contrasting sites to test the accuracy of prediction of tonnes dry matter of above-ground biomass per hectare using different classes of allometric equations. A finer-scale analysis tested performance of these at an individual-tree level across a wider range of sites. Although the percentage error in prediction could be high at a given site (up to 45%), it was relatively low (<11%) when generalised allometry-predictions of biomass was used to make regional- or estate-level estimates across a range of sites. Precision, and thus accuracy, increased slightly with the level of specificity of allometry. Inclusion of site-specific factors in generic equations increased efficiency of prediction of above-ground biomass by as much as 8%. Site-and-species-specific equations are the most accurate for site-based predictions. Generic allometric equations developed here, particularly the generic species-specific equations, can be confidently applied to provide regional- or estate-level estimates of above-ground biomass and carbon. © 2013 Elsevier B.V.

Cucumber volatile blend, a promising female-biased lure for Bactrocera cucumis (French 1907) (Diptera: Tephritidae: Dacinae), a pest fruit fly that does not respond to male attractants

Bactrocera cucumis (French 1907), the ‘cucumber fruit fly’, is a horticultural pest in Australia that primarily infests cucurbits and has also been recorded from tomatoes, papaw and several other hosts. It does not respond to known male lures, cue-lure and methyl eugenol, making monitoring and control difficult. A cucumber volatile blend lure was recently developed in Hawaii and found to be an effective female-biased attractant for the melon fly B. cucurbitae. This lure was field tested in north Queensland, Australia in McPhail traps in comparison with orange ammonia, Cera Trap® and a control, and was found to more consistently trap B. cucumis than the other lures. B. cucumis were caught at 41% of the cucumber volatile lure trap clearances, compared with 27% of the orange ammonia, 18% of the Cera Trap and 16% of the control trap clearances. The cucumber volatile lure was more attractive to B. cucumis in low population densities and also trapped B. cucumis earlier on average than the other lures. Data analysed from the site with highest trap catches (Spring Creek) showed that the cucumber volatile lure caught significantly more B. cucumis than the other traps in four of the 11 trap clearance periods, and for the remaining clearances, no other trap type caught significantly more flies than the cucumber volatile lure. The cucumber volatile lure had a strong female-biased attraction but it was not significantly more female-biased than orange ammonia or Cera Trap. Cucumber volatile lure traps were cleaner to service resulting in better quality specimens than the orange ammonia trap or Cera Trap. These findings have potential implications for market access monitoring for determining pest freedom, and for biosecurity monitoring programmes in other countries that wish to detect B. cucumis early.

Reconstructions of past climates from documentary and natural sources in Finland since the 18th century

In this paper both documentary and natural proxy data have been used to improve the accuracy of palaeoclimatic knowledge in Finland since the 18th century. Early meteorological observations from Turku (1748-1800) were analyzed first as a potential source of climate variability. The reliability of the calculated mean temperatures was evaluated by comparing them with those of contemporary temperature records from Stockholm, St. Petersburg and Uppsala. The resulting monthly, seasonal and yearly mean temperatures from 1748 to 1800 were compared with the present day mean values (1961-1990): the comparison suggests that the winters of the period 1749-1800 were 0.8 ºC colder than today, while the summers were 0.4 ºC warmer. Over the same period, springs were 0.9 ºC and autumns 0.1 ºC colder than today. Despite their uncertainties when compared with modern meteorological data, early temperature measurements offer direct and daily information about the weather for all months of the year, in contrast with other proxies. Secondly, early meteorological observations from Tornio (1737-1749) and Ylitornio (1792-1838) were used to study the temporal behaviour of the climate-tree growth relationship during the past three centuries in northern Finland. Analyses showed that the correlations between ring widths and mid-summer (July) temperatures did not vary significantly as a function of time. Early (June) and late summer (August) mean temperatures were secondary to mid-summer temperatures in controlling the radial growth. According the dataset used, there was no clear signature of temporally reduced sensitivity of Scots pine ring widths to mid-summer temperatures over the periods of early and modern meteorological observations. Thirdly, plant phenological data with tree-rings from south-west Finland since 1750 were examined as a palaeoclimate indicator. The information from the fragmentary, partly overlapping, partly nonsystematically biased plant phenological records of 14 different phenomena were combined into one continuous time series of phenological indices. The indices were found to be reliable indicators of the February to June temperature variations. In contrast, there was no correlation between the phenological indices and the precipitation data. Moreover, the correlations between the studied tree-rings and spring temperatures varied as a function of time and hence, their use in palaeoclimate reconstruction is questionable. The use of present tree-ring datasets for palaeoclimate purposes may become possible after the application of more sophisticated calibration methods. Climate variability since the 18th century is perhaps best seen in the fourth paper study of the multiproxy spring temperature reconstruction of south-west Finland. With the help of transfer functions, an attempt has been made to utilize both documentary and natural proxies. The reconstruction was verified with statistics showing a high degree of validity between the reconstructed and observed temperatures. According to the proxies and modern meteorological observations from Turku, springs have become warmer and have featured a warming trend since around the 1850s. Over the period of 1750 to around 1850, springs featured larger multidecadal low-frequency variability, as well as a smaller range of annual temperature variations. The coldest springtimes occurred around the 1840s and 1850s and the first decade of the 19th century. Particularly warm periods occurred in the 1760s, 1790s, 1820s, 1930s, 1970s and from 1987 onwards, although in this period cold springs occurred, such as the springs of 1994 and 1996. On the basis of the available material, long-term temperature changes have been related to changes in the atmospheric circulation, such as the North Atlantic Oscillation (February-June).

Essays on corporate governance, stakeholders, and restructuring

This dissertation consists of an introductory section and three theoretical essays analyzing the interaction of corporate governance and restructuring. The essays adopt an incomplete contracts approach and analyze the role of different institutional designs to facilitate the alignment of the objectives of shareholders and management (or employees) over the magnitude of corporate restructuring. The first essay analyzes how a firm's choice of production technology affects the employees' human capital investment. In the essay, the owners of the firm can choose between a specific and a general technology that both require a costly human capital investment by the employees. The specific technology is initially superior in using the human capital of employees but, in contrast to the general technology, it is not compatible with future innovations. As a result, anticipated changes in the specific technology diminish the ex ante incentives of the employees to invest in human capital unless the shareholders grant the employees specific governance mechanisms (a right of veto, severance pay) so as to protect their investments. The results of the first essay indicate that the level of protection that the shareholders are willing to offer falls short of the socially desirable one. Furthermore, when restructuring opportunities become more abundant, it becomes more attractive both socially and from the viewpoint of the shareholders to initially adopt the general technology. The second essay analyzes how the allocation of authority within the firm interacts with the owners' choice of business strategy when the ability of the owners to monitor the project proposals of the management is biased in favor of the status quo strategy. The essay shows that a bias in the monitoring ability will affect not only the allocation of authority within the firm but also the choice of business strategy. Especially, when delegation has positive managerial incentive effects, delegation turns out to be more attractive under the new business strategy because the improved managerial incentives are a way for the owners to compensate their own reduced information gathering ability. This effect, however, simultaneously makes the owners hesitant to switch the strategy since it would involve a more frequent loss of control over the project choice. Consequently, the owners' lack of knowledge of the new business strategy may lead to a suboptimal choice of strategy. The third essay analyzes the implications of CEO succession process for the ideal board structure. In this essay, the presence of the departing CEO on the board facilitates the ability of the board to find a matching successor and to counsel him. However, the ex-CEO's presence may simultaneously also weaken the ability of the board to restructure since the predecessor may use the opportunity to distort the successor's project choice. The results of the essay suggest that the extent of restructuring gains, the firm's ability to hire good outside directors and the importance of board's advisory role affect at which point and for how long the shareholders may want to nominate the predecessor to the board.

Essays on Labor Market Frictions, Technological Change and Macroeconomic Fluctuations

The dissertation consists of an introductory chapter and three essays that apply search-matching theory to study the interaction of labor market frictions, technological change and macroeconomic fluctuations. The first essay studies the impact of capital-embodied growth on equilibrium unemployment by extending a vintage capital/search model to incorporate vintage human capital. In addition to the capital obsolescence (or creative destruction) effect that tends to raise unemployment, vintage human capital introduces a skill obsolescence effect of faster growth that has the opposite sign. Faster skill obsolescence reduces the value of unemployment, hence wages and leads to more job creation and less job destruction, unambiguously reducing unemployment. The second essay studies the effect of skill biased technological change on skill mismatch and the allocation of workers and firms in the labor market. By allowing workers to invest in education, we extend a matching model with two-sided heterogeneity to incorporate an endogenous distribution of high and low skill workers. We consider various possibilities for the cost of acquiring skills and show that while unemployment increases in most scenarios, the effect on the distribution of vacancy and worker types varies according to the structure of skill costs. When the model is extended to incorporate endogenous labor market participation, we show that the unemployment rate becomes less informative of the state of the labor market as the participation margin absorbs employment effects. The third essay studies the effects of labor taxes on equilibrium labor market outcomes and macroeconomic dynamics in a New Keynesian model with matching frictions. Three policy instruments are considered: a marginal tax and a tax subsidy to produce tax progression schemes, and a replacement ratio to account for variability in outside options. In equilibrium, the marginal tax rate and replacement ratio dampen economic activity whereas tax subsidies boost the economy. The marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs shocks. We show that increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks. When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses.

Relative ranking: A biased rating

Reviewers' ratings have become one of the most influential parameters when making a decision to purchase or rent the products or services from the online vendors. Star Rating system is the de-facto standard for rating a product. It is regarded as one of the most visually appealing rating systems that directly interact with the consumers; helping them find products they will like to purchase as well as register their views on the product. It offers visual advantage to pick the popular or most rated product. Any system that is not as appealing as star system will have a chance of rejection by online business community. This paper argues that, the visual advantage is not enough to declare star rating system as a triumphant, the success of a ranking system should be measured by how effectively the system helps customers make decisions that they, retrospectively, consider correct. This paper argues and suggests a novel approach of Relative Ranking within the boundaries of star rating system to overcome a few inherent disadvantages the former system comes with. © Springer Science+Business Media B.V. 2010.

Species-based and community-level approaches to conservation prioritization

One major reason for the global decline of biodiversity is habitat loss and fragmentation. Conservation areas can be designed to reduce biodiversity loss, but as resources are limited, conservation efforts need to be prioritized in order to achieve best possible outcomes. The field of systematic conservation planning developed as a response to opportunistic approaches to conservation that often resulted in biased representation of biological diversity. The last two decades have seen the development of increasingly sophisticated methods that account for information about biodiversity conservation goals (benefits), economical considerations (costs) and socio-political constraints. In this thesis I focus on two general topics related to systematic conservation planning. First, I address two aspects of the question about how biodiversity features should be valued. (i) I investigate the extremely important but often neglected issue of differential prioritization of species for conservation. Species prioritization can be based on various criteria, and is always goal-dependent, but can also be implemented in a scientifically more rigorous way than what is the usual practice. (ii) I introduce a novel framework for conservation prioritization, which is based on continuous benefit functions that convert increasing levels of biodiversity feature representation to increasing conservation value using the principle that more is better. Traditional target-based systematic conservation planning is a special case of this approach, in which a step function is used for the benefit function. We have further expanded the benefit function framework for area prioritization to address issues such as protected area size and habitat vulnerability. In the second part of the thesis I address the application of community level modelling strategies to conservation prioritization. One of the most serious issues in systematic conservation planning currently is not the deficiency of methodology for selection and design, but simply the lack of data. Community level modelling offers a surrogate strategy that makes conservation planning more feasible in data poor regions. We have reviewed the available community-level approaches to conservation planning. These range from simplistic classification techniques to sophisticated modelling and selection strategies. We have also developed a general and novel community level approach to conservation prioritization that significantly improves on methods that were available before. This thesis introduces further degrees of realism into conservation planning methodology. The benefit function -based conservation prioritization framework largely circumvents the problematic phase of target setting, and allowing for trade-offs between species representation provides a more flexible and hopefully more attractive approach to conservation practitioners. The community-level approach seems highly promising and should prove valuable for conservation planning especially in data poor regions. Future work should focus on integrating prioritization methods to deal with multiple aspects in combination influencing the prioritization process, and further testing and refining the community level strategies using real, large datasets.

The Emerging Phenotype: Ecological Genetics of Color, Form and Sex in the Common Frog

One of the main aims of evolutionary biology is to explain why organisms vary phenotypically as they do. Proximately, this variation arises from genetic differences and from environmental influences, the latter of which is referred to as phenotypic plasticity. Phenotypic plasticity is thus a central concept in evolutionary biology, and understanding its relative importance in causing the phenotypic variation and differentiation is important, for instance in anticipating the consequences of human induced environmental changes. The aim of this thesis was to study geographic variation and local adaptation, as well as sex ratios and environmental sex reversal, in the common frog (Rana temporaria). These themes cover three different aspects of phenotypic plasticity, which emerges as the central concept for the thesis. The first two chapters address geographic variation and local adaptation in two potentially thermally adaptive traits, namely the degree of melanism and the relative leg length. The results show that although there is an increasing latitudinal trend in the degree of melanism in wild populations across Scandinavian Peninsula, this cline has no direct genetic basis and is thus environmentally induced. The second chapter demonstrates that although there is no linear, latitudinally ordered phenotypic trend in relative leg length that would be expected under Allen s rule an ecogeographical rule linking extremity length to climatic conditions there seems to be such a trend at the genetic level, hidden under environmental effects. The first two chapters thus view phenotypic plasticity through its ecological role and evolution, and demonstrate that it can both give rise to phenotypic variation and hide evolutionary patterns in studies that focus solely on phenotypes. The last three chapters relate to phenotypic plasticity through its ecological and evolutionary role in sex determination, and consequent effects on population sex ratio, genetic recombination and the evolution of sex chromosomes. The results show that while sex ratios are strongly female biased and there is evidence of environmental sex reversals, these reversals are unlikely to have caused the sex ratio skew, at least directly. The results demonstrate that environmental sex reversal can have an effect on the evolution of sex chromosomes, as the recombination patterns between them seem to be controlled by phenotypic, rather than genetic, sex. This potentially allows Y chromosomes to recombine, lending support for the recent hypothesis suggesting that sex-reversal may play an important role on the rejuvenation of Y chromosomes.

'Mutiny on the Bounty': The genetic history of Norfolk Island reveals extreme gender-biased admixture

Background The Pacific Oceania region was one of the last regions of the world to be settled via human migration. Here we outline a settlement of this region that has given rise to a uniquely admixed population. The current Norfolk Island population has arisen from a small number of founders with mixed Caucasian and Polynesian ancestry, descendants of a famous historical event. The ‘Mutiny on the Bounty’ has been told in history books, songs and the big screen, but recently this story can be portrayed through comprehensive molecular genetics. Written history details betrayal and murder leading to the founding of Pitcairn Island by European mutineers and the Polynesian women who left Tahiti with them. Investigation of detailed genealogical records supports historical accounts. Findings Using genetics, we show distinct maternal Polynesian mitochondrial lineages in the present day population, as well as a European centric Y-chromosome phylogeny. These results comprehensively characterise the unique gender-biased admixture of this genetic isolate and further support the historical records relating to Norfolk Island. Conclusions Our results significantly refine previous population genetic studies investigating Polynesian versus Caucasian diversity in the Norfolk Island population and add information that is beneficial to future disease and gene mapping studies.

Looking at the other side: Families, public health and anti-vaccination

The choice to vaccinate or not to vaccinate a child is usually an ‘informed decision’, however, it is how this decision is informed which is of most importance. More frequently, families are turning to the Internet, in particular social media, as a data source to support their decisions. However, much of the online information may be unscientific or biased. While issues such as vaccination will always see dissenting voices, engaging with that ‘other side’ is difficult in the public policy debate which is informed by evidence based science. This chapter investigates the other side in light of the growing adoption and reliance on social media as a source of anti-vaccine information. The study adopts a qualitative approach to data collection and is based on a critical discourse analysis of online social media discourse. The findings demonstrate the valuable contribution this approach can make to public policy work in vaccination.

Features of the geomagnetic field during the Holocene and Proterozoic

The geomagnetic field is one of the most fundamental geophysical properties of the Earth and has significantly contributed to our understanding of the internal structure of the Earth and its evolution. Paleomagnetic and paleointensity data have been crucial in shaping concepts like continental drift, magnetic reversals, as well as estimating the time when the Earth's core and associated geodynamo processes begun. The work of this dissertation is based on reliable Proterozoic and Holocene geomagnetic field intensity data obtained from rocks and archeological artifacts. New archeomagnetic field intensity results are presented for Finland, Estonia, Bulgaria, Italy and Switzerland. The data were obtained using sophisticated laboratory setups as well as various reliability checks and corrections. Inter-laboratory comparisons between three laboratories (Helsinki, Sofia and Liverpool) were performed in order to check the reliability of different paleointensity methods. The new intensity results fill up considerable gaps in the master curves for each region investigated. In order to interpret the paleointensity data of the Holocene period, a novel and user-friendly database (GEOMAGIA50) was constructed. This provided a new tool to independently test the reliability of various techniques and materials used in paleointensity determinations. The results show that archeological artifacts, if well fired, are the most suitable materials. Also lavas yield reliable paleointensity results, although they appear more scattered. This study also shows that reliable estimates are obtained using the Thellier methodology (and its modifications) with reliability checks. Global paleointensity curves during Paleozoic and Proterozoic have several time gaps with few or no intensity data. To define the global intensity behavior of the Earth's magnetic field during these times new rock types (meteorite impact rocks) were investigated. Two case histories are presented. The Ilyinets (Ukraine) impact melt rocks yielded a reliable paleointensity value at 440 Ma (Silurian), whereas the results from Jänisjärvi impact melts (Russian Karelia, ca. 700 Ma) might be biased towards high intensity values because of non-ideal magnetic mineralogy. The features of the geomagnetic field at 1.1 Ga are not well defined due to problems related to reversal asymmetries observed in Keweenawan data of the Lake Superior region. In this work new paleomagnetic, paleosecular variation and paleointensity results are reported from coeval diabases from Central Arizona and help understanding the asymmetry. The results confirm the earlier preliminary observations that the asymmetry is larger in Arizona than in Lake Superior area. Two of the mechanisms proposed to explain the asymmetry remain plausible: the plate motion and the non-dipole influence.

Intrinsic limits of subthreshold slope in biased bilayer graphene transistor

In this work, we investigate the intrinsic limits of subthreshold slope in a dual gated bilayer graphene transistor using a coupled self-consistent Poisson-bandstructure solver. We benchmark the solver by matching the bias dependent band gap results obtained from the solver against published experimental data. We show that the intrinsic bias dependence of the electronic structure and the self-consistent electrostatics limit the subthreshold slope obtained in such a transistor well above the Boltzmann limit of 60 mV/decade at room temperature, but much below the results experimentally shown till date, indicating room for technological improvement of bilayer graphene.

Essays on Risk Modeling. Applications to Portfolio and Risk Management (summary section only)

In this thesis we deal with the concept of risk. The objective is to bring together and conclude on some normative information regarding quantitative portfolio management and risk assessment. The first essay concentrates on return dependency. We propose an algorithm for classifying markets into rising and falling. Given the algorithm, we derive a statistic: the Trend Switch Probability, for detection of long-term return dependency in the first moment. The empirical results suggest that the Trend Switch Probability is robust over various volatility specifications. The serial dependency in bear and bull markets behaves however differently. It is strongly positive in rising market whereas in bear markets it is closer to a random walk. Realized volatility, a technique for estimating volatility from high frequency data, is investigated in essays two and three. In the second essay we find, when measuring realized variance on a set of German stocks, that the second moment dependency structure is highly unstable and changes randomly. Results also suggest that volatility is non-stationary from time to time. In the third essay we examine the impact from market microstructure on the error between estimated realized volatility and the volatility of the underlying process. With simulation-based techniques we show that autocorrelation in returns leads to biased variance estimates and that lower sampling frequency and non-constant volatility increases the error variation between the estimated variance and the variance of the underlying process. From these essays we can conclude that volatility is not easily estimated, even from high frequency data. It is neither very well behaved in terms of stability nor dependency over time. Based on these observations, we would recommend the use of simple, transparent methods that are likely to be more robust over differing volatility regimes than models with a complex parameter universe. In analyzing long-term return dependency in the first moment we find that the Trend Switch Probability is a robust estimator. This is an interesting area for further research, with important implications for active asset allocation.

Appropriate Institutions and Economic Growth - one size fits no-one

Modern-day economics is increasingly biased towards believing that institutions matter for growth, an argument that has been further enforced by the recent economic crisis. There is also a wide consensus on what these growth-promoting institutions should look like, and countries are periodically ranked depending on how their institutional structure compares with the best-practice institutions, mostly in place in the developing world. In this paper, it is argued that ”non-desirable” or “second-best” institutions can be beneficial for fostering investment and thus providing a starting point for sustained growth, and that what matters is the appropriateness of institutions to the economy’s distance to the frontier or current phase of development. Anecdotal evidence from Japan and South-Korea is used as a motivation for studying the subject and a model is presented to describe this phenomenon. In the model, the rigidity or non-rigidity of the institutions is described by entrepreneurial selection. It is assumed that entrepreneurs are the ones taking part in the imitation and innovation of technologies, and that decisions on whether or not their projects are refinanced comes from capitalists. The capitalists in turn have no entrepreneurial skills and act merely as financers of projects. The model has two periods, and two kinds of entrepreneurs: those with high skills and those with low skills. The society’s choice of whether an imitation or innovation – based strategy is chosen is modeled as the trade-off between refinancing a low-skill entrepreneur or investing in the selection of the entrepreneurs resulting in a larger fraction of high-skill entrepreneurs with the ability to innovate but less total investment. Finally, a real-world example from India is presented as an initial attempt to test the theory. The data from the example is not included in this paper. It is noted that the model may be lacking explanatory power due to difficulties in testing the predictions, but that this should not be seen as a reason to disregard the theory – the solution might lie in developing better tools, not better just better theories. The conclusion presented is that institutions do matter. There is no one-size-fits-all-solution when it comes to institutional arrangements in different countries, and developing countries should be given space to develop their own institutional structures that cater to their specific needs.