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.

Intraday Dynamics of International Equity Markets

The increased availability of high frequency data sets have led to important new insights in understanding of financial markets. The use of high frequency data is interesting and persuasive, since it can reveal new information that cannot be seen in lower data aggregation. This dissertation explores some of the many important issues connected with the use, analysis and application of high frequency data. These include the effects of intraday seasonal, the behaviour of time varying volatility, the information content of various market data, and the issue of inter market linkages utilizing high frequency 5 minute observations from major European and the U.S stock indices, namely DAX30 of Germany, CAC40 of France, SMI of Switzerland, FTSE100 of the UK and SP500 of the U.S. The first essay in the dissertation shows that there are remarkable similarities in the intraday behaviour of conditional volatility across European equity markets. Moreover, the U.S macroeconomic news announcements have significant cross border effect on both, European equity returns and volatilities. The second essay reports substantial intraday return and volatility linkages across European stock indices of the UK and Germany. This relationship appears virtually unchanged by the presence or absence of the U.S stock market. However, the return correlation among the U.K and German markets rises significantly following the U.S stock market opening, which could largely be described as a contemporaneous effect. The third essay sheds light on market microstructure issues in which traders and market makers learn from watching market data, and it is this learning process that leads to price adjustments. This study concludes that trading volume plays an important role in explaining international return and volatility transmissions. The examination concerning asymmetry reveals that the impact of the positive volume changes is larger on foreign stock market volatility than the negative changes. The fourth and the final essay documents number of regularities in the pattern of intraday return volatility, trading volume and bid-ask spreads. This study also reports a contemporaneous and positive relationship between the intraday return volatility, bid ask spread and unexpected trading volume. These results verify the role of trading volume and bid ask quotes as proxies for information arrival in producing contemporaneous and subsequent intraday return volatility. Moreover, asymmetric effect of trading volume on conditional volatility is also confirmed. Overall, this dissertation explores the role of information in explaining the intraday return and volatility dynamics in international stock markets. The process through which the information is incorporated in stock prices is central to all information-based models. The intraday data facilitates the investigation that how information gets incorporated into security prices as a result of the trading behavior of informed and uninformed traders. Thus high frequency data appears critical in enhancing our understanding of intraday behavior of various stock markets’ variables as it has important implications for market participants, regulators and academic researchers.

Volatility Smile Dynamics in Scenario Analysis

The objective of this paper is to suggest a method that accounts for the impact of the volatility smile dynamics when performing scenario analysis for a portfolio consisting of vanilla options. As the volatility smile is documented to change at least with the level of implied at-the-money volatility, a suitable model is here included in the calculation process of the simulated market scenarios. By constructing simple portfolios of index options and comparing the ex ante risk exposure measured using different pricing methods to realized market values, ex post, the improvements of the incorporation of the model are monitored. The analyzed examples in the study generate results that statistically support that the most accurate scenarios are those calculated using the model accounting for the dynamics of the smile. Thus, we show that the differences emanating from the volatility smile are apparent and should be accounted for and that the methodology presented herein is one suitable alternative for doing so.

Trade Liberalization, Heterogeneous Firms and Industrial Dynamics

This master thesis studies how trade liberalization affects the firm-level productivity and industrial evolution. To do so, I built a dynamic model that considers firm-level productivity as endogenous to investigate the influence of trade on firm’s productivity and the market structure. In the framework, heterogeneous firms in the same industry operate differently in equilibrium. Specifically, firms are ex ante identical but heterogeneity arises as an equilibrium outcome. Under the setting of monopolistic competition, this type of model yields an industry that is represented not by a steady-state outcome, but by an evolution that rely on the decisions made by individual firms. I prove that trade liberalization has a general positive impact on technological adoption rates and hence increases the firm-level productivity. Besides, this endogenous technology adoption model also captures the stylized facts: exporting firms are larger and more productive than their non-exporting counterparts in the same sector. I assume that the number of firms is endogenous, since, according to the empirical literature, the industrial evolution shows considerably different patterns across countries; some industries experience large scale of firms’ exit in the period of contracting market shares, while some industries display relative stable number of firms or gradually increase quantities. The special word “shakeout” is used to describe the dramatic decrease in the number of firms. In order to explain the causes of shakeout, I construct a model where forward-looking firms decide to enter and exit the market on the basis of their state of technology. In equilibrium, firms choose different dates to adopt innovation which generate a gradual diffusion process. It is exactly this gradual diffusion process that generates the rapid, large-scale exit phenomenon. Specifically, it demonstrates that there is a positive feedback between firm’s exit and adoption, the reduction in the number of firms increases the incentives for remaining firms to adopt innovation. Therefore, in the setting of complete information, this model not only generates a shakeout but also captures the stability of an industry. However, the solely national view of industrial evolution neglects the importance of international trade in determining the shape of market structure. In particular, I show that the higher trade barriers lead to more fragile markets, encouraging the over-entry in the initial stage of industry life cycle and raising the probability of a shakeout. Therefore, more liberalized trade generates more stable market structure from both national and international viewpoints. The main references are Ederington and McCalman(2008,2009).

Social dynamics for sustainable food systems : Actors' orientations towards sustainability in primary production and public consumption

The modern food system and sustainable development form a conceptual combination that suggests sustainability deficits in environmental impacts and nutritional status of western populations. This study explores actors orientations towards sustainability by probing into social dynamics for sustainability within primary production and public consumption. If actors within these two worlds were to express converging orientations for sustainability, the system dynamics of the market would enable more sustainable growth in terms of production dictated by consumption. The study is based on a constructivist research approach with qualitative text analyses. The findings were validated by internal and external food system actors and are suggested to represent current social dynamics within Finnish food system. The key findings included primary producers social skilfulness, which enabled networking with other actors in very different paths of life, learning in order to promote one s trade, and trusting reflectively in partners in order to expand business. These activities extended the supply chain in a spiral fashion by horizontal and vertical forward integration, until large retailers were met for negotiations on a more equal basis. This mode of chain level coordination, typically building around the core of social and partnership relations, was coined as a socially overlaid network, and seen as sustainable coordination mode for endogenous growth. The caterers exhibited more or less committed professional identity for sustainability within their reach. The facilitating approaches for professional identities dealt successfully with local and organic food in addition to domestic food, and also imported food. The co-operation with supply chains created innovative solutions and savings for the business parties to be shared. There were also more complicated identities as juggling, critical and delimited approaches for sustainability, with less productive efforts due to restrictions such as absence of organisational sustainability strategy, weak presence of local and organic suppliers, limited understanding about sustainability and no organisational resources for informed choices for sustainability. The convergence between producers and caterers existed to an extent allowing suggestion that increased clarity about sustainable consumption and production by actors could be constructed using advanced tools. The study looks for introduction of more profound environmental and socio-economic knowledge through participatory research with supply chain actors. Learning in the workplace about food system reality in terms of supply chain co-operation may prove to be a change engine that leads to advanced network operations and a more sustainable food system.

Social dynamics for sustainable food systems. Actors’ orientations towards sustainability in primary production and public consumption

Abstract The modern food system and sustainable development form a conceptual combination that suggests sustainability deficits in the ways we deal with food consumption and production - in terms of economic relations, environmental impacts and nutritional status of western population. This study explores actors’ orientations towards sustainability by taking into account actors’ embedded positions within structures of the food system, actors’ economic relations and views about sustainability as well as their possibilities for progressive activities. The study looks particularly at social dynamics for sustainability within primary production and public consumption. If actors within these two worlds were to express converging orientations for sustainability, the system dynamics of the market would enable more sustainable growth in terms of production dictated by consumption. The study is based on a constructivist research approach with qualitative text analyses. The data consisted of three text corpora, the ‘local food corpus’, the ‘catering corpus’ and the ‘mixed corpus’. The local food actors were interviewed about their economic exchange relations. The caterers’ interviews dealt with their professional identity for sustainability. Finally, the mixed corpus assembled a dialogue as a participatory research approach, which was applied in order to enable researcher and caterer learning about the use of organic milk in public catering. The data were analysed for theoretically conceptualised relations, expressing behavioural patterns in actors’ everyday work as interpreted by the researcher. The findings were corroborated by the internal and external communities of food system actors. The interpretations have some validity, although they only present abstractions of everyday life and its rich, even opaque, fabric of meanings and aims. The key findings included primary producers’ social skilfulness, which enabled networking with other actors in very different paths of life, learning in order to promote one’s trade, and trusting reflectively in partners in order to extend business. These activities expanded the supply chain in a spiral fashion by horizontal and vertical forward integration, until large retailers were met for negotiations on a more equal or ‘other regarding’ basis. This kind of chain level coordination, typically building around the core of social and partnership relations, was coined as a socially overlaid network. It supported market access of local farmers, rooted in their farms, who were able to draw on local capital and labour in promotion of competitive business; the growth was endogenous. These kinds of chains – one conventional and one organic – were different from the strategic chain, which was more profit based and while highly competitive, presented exogenous growth as it depended on imported capital and local employees. However, the strategic chain offered learning opportunities and support for the local economy. The caterers exhibited more or less committed professional identity for sustainability within their reach. The facilitating and balanced approaches for professional identities dealt successfully with local and organic food in addition to domestic food, and also imported food. The co-operation with supply chains created innovative solutions and savings for the business parties to be shared. The rule-abiding approach for sustainability only made choices among organic supply chains without extending into co-operation with actors. There were also more complicated and troubled identities as juggling, critical and delimited approaches for sustainability, with less productive efforts due to restrictions such as absence of organisational sustainability strategy, weak presence of local and organic suppliers, limited understanding about sustainability and no organisational resources to develop changes towards a sustainable food system. Learning in the workplace about food system reality in terms of supply chain co-operation may prove to be a change engine that leads to advanced network operations and a more sustainable food system. The convergence between primary producers and caterers existed to an extent allowing suggestion that increased clarity about sustainable consumption and production by actors could be approached using advanced tools. The study looks for introduction of more profound environmental and socio-economic knowledge through participatory research with supply chain actors in order to promote more sustainable food systems. Summary of original publications and the authors’ contribution I Mikkola, M. & Seppänen, L. 2006. Farmers’ new participation in food chains: making horizontal and vertical progress by networking. In: Langeveld, H. & Röling N. (Eds.). Changing European farming systems for a better future. New visions for rural areas. Wageningen, The Netherlands. Wageningen Academic Publishers: 267–271. II Mikkola, M. 2008. Coordinative structures and development of food supply chains. British Food Journal 110 (2): 189–205. III Mikkola, M. 2009. Shaping professional identity for sustainability. Evidence in Finnish public catering. Appetite 53 (1): 56–65. IV Mikkola, M. 2009. Catering for sustainability: building a dialogue on organic milk. Agronomy Research 7 (Special issue 2): 668–676. Minna Mikkola has been responsible for developing the generic research frame, particular research questions, the planning and collection of the data, their qualitative analysis and writing the articles I, II, III and IV. Dr Laura Seppänen has contributed to the development of the generic research frame and article I by introducing the author to the basic concepts of economic sociology and by supporting the writing of article II with her critical comments. Articles are printed with permission from the publishers.

Patent Price Dynamics in the Context of Patent Age and Patent Latent Variables

The decision to patent a technology is a difficult one to make for the top management of any organization. The expected value that the patent might deliver in the market is an important factor that impacts this judgement. Earlier researchers have suggested that patent prices are better indicators of value of a patent and that auction prices are the best way of determining value. However, the lack of public data on pricing has prevented research on understanding the dynamics of patent pricing. Our paper uses singleton patent auction price data of Ocean Tomo LLC to study the prices of patents. We describe price characteristics of these patents. The price of these patents was correlated with their age, and a significant correlation was found. A price - age matrix was developed and we describe the price characteristics of patents using four quadrants of the matrix, namely young and old patents with low and high prices. We also found that patents owned by small firms get transacted more often and inventor owned patents attracted a better price than assignee owned patents.

The dynamics between forward citations and price of singleton patents

In recent years, business practitioners are seen valuing patents on the basis of the market price that the patent can attract. Researchers have also looked into various patent latent variables and firm variables that influence the price of a patent. Forward citations of a patent are shown to play a role in determining price. Using patent auction price data (of Ocean Tomo now ICAP patent brokerage), we delve deeper into of the role of forward citations. The successfully sold 167 singleton patents form the sample of our study. We found that, it is mainly the right tail of the citation distribution that explains the high prices of the patents falling on the right tail of the price distribution. There is consistency in the literature on the positive correlation between patent prices and forward citations. In this paper, we go deeper to understand this linear relationship through case studies. Case studies of patents with high and low citations are described in this paper to understand why some patents attracted high prices. We look into the role of additional patent latent variables like age, technology discipline, class and breadth of the patent in influencing citations that a patent receives.

Long Term Dynamics in CO2 Allowance Prices and Carbon Capture Investments

In this paper we analyse the behaviour of the EU market for CO2 emission allowances; specifically, we focus on the contracts maturing in the Kyoto Protocol's second period of application (2008 to 2012). We calibrate the underlying parameters for the allowance price in the long run and we also calibrate those from the Spanish wholesale electricity market. This information is then used to assess the option to install a carbon capture and storage (CCS) unit in a coal-fired power plant. We use a two-dimensional binomial lattice where costs and profits are valued and the optimal investment time is determined. In other words, we study the trigger allowance prices above which it is optimal to install the capture unit immediately. We further analyse the impact of several variables on the critical prices, among them allowance price volatility and a hypothetical government subsidy. We conclude that, at current permit prices, from a financial point of view, immediate installation does not seem justified. This need not be the case, though, if carbon market parameters change dramatically and/or a specific policy to promote these units is adopted.

The Politics of Internet Regulation in Brazil : dynamics, factors, and actors in broadband policy

In May 2010, Brazil joined the roll of nations with a National Broadband Plan. The Decree nº 7,175/2010 had implemented a program that aimed to offer 30 million permanent broadband accesses until 2014 and established its main goals, such as accelerating economic and social development, promoting digital inclusion, reducing social and regional inequalities, promoting a generation of employment and income, and expanding electronic government services. However, the broadband access in Brazil is limited, expensive, and centralized in the main urban centres. Despite the fast growth in the past years due to mobile internet access, the market is still concentrated in the local incumbent operators that currently provide mobile services, landline services and Paid-TV services, resulting in a high level of market verticalization. The following dissertation investigates the constraint of broadband access development, the dynamics, the actors, and the factors that have delayed the roll-out of broadband services in Brazil. The study also promotes reflections about the challenge posed by the media, by costumers associations and by public opinion as critical observers of the policy making process. This research examines on the political influence towards regulation to determine the way policy will benefit interest groups. Many interviews have been conducted in order to understand the forces which have been acting in the telecommunications in Brazil after privatization, in 1998. This study aims to provide a better understanding of telecommunications regulatory process in Brazil, in order to help the country finding an adequate policy which can lead to the implementation of a broadband roll-out. The universal broadband access is the only way to benefit the whole society in Brazil with a satisfactory level of education and create more jobs and economic development regarding the plenty use of Information and Communications Technology (ICT).

Multi-species and multi-interest management: An ecosystem approach to market squid (Loligo opalescens) harvest in California

Market squid (Loligo opalescens) plays a vital role in the California ecosystem and serves as a major link in the food chain as both a predator and prey species. For over a century, market squid has also been harvested off the California coast from Monterey to San Pedro. Expanding global markets, coupled with a decline in squid product from other parts of the world, in recent years has fueled rapid expansion of the virtually unregulated California fishery. Lack of regulatory management, in combination with dramatic increases in fishing effort and landings, has raised numerous concerns from the scientific, fishing, and regulatory communities. In an effort to address these concerns, the National Oceanic and Atmospheric Administration’s (NOAA) Channel Islands National Marine Sanctuary (CINMS) hosted a panel discussion at the October 1997 California Cooperative Oceanic and Fisheries Investigations (CalCOFI) Conference; it focused on ecosystem management implications for the burgeoning market squid fishery. Both panel and audience members addressed issues such as: the direct and indirect effects of commercial harvesting upon squid biomass; the effects of harvest and the role of squid in the broader marine community; the effects of environmental variation on squid population dynamics; the sustainability of the fishery from the point of view of both scientists and the fishers themselves; and the conservation management options for what is currently an open access and unregulated fishery. Herein are the key points of the ecosystem management panel discussion in the form of a preface, an executive summary, and transcript. (PDF contains 33 pages.)

An Alternative View of the US Price-Dividend Ratio Dynamics

As a necessary condition for the validity of the present value model, the price-dividend ratio must be stationary. However, significant market episodes seem to provide evidence of prices significantly drifting apart from dividends while other episodes show prices anchoring back to dividends. This paper investigates the stationarity of this ratio in the context of a Markov- switching model à la Hamilton (1989) where an asymmetric speed of adjustment towards a unique attractor is introduced. A three-regime model displays the best regime identification and reveals that the first part of the 90’s boom (1985-1995) and the post-war period are characterized by a stationary state featuring a slow reverting process to a relatively high attractor. Interestingly, the latter part of the 90’s boom (1996-2000), characterized by a growing price-dividend ratio, is entirely attributed to a stationary regime featuring a highly reverting process to the attractor. Finally, the post-Lehman Brothers episode of the subprime crisis can be classified into a temporary nonstationary regime.

Analysis of the housing market in the autonomous community of the Basque country: the adjustment after the burst of the housing bubble

In this project study the characteristic and dynamics of the residential housing market in the Basque country. When strong expansion and colapsing emerged in 2007,studied the differents adjustment.

Morphometry and population dynamics of Sepia aculeata, (Orbigny - 1848) along the Bombay coast

Cephalopods gained importance in the fishing industry when they emerged as one of the leading sea food products exclusively for international market in the mid seventies. Cephalopods fishery in India is still in an infant stage with vast scope for exploitation. The present work on the cephalopods fishery along the Bombay coast is an effort to quantify the resource potential of Sepia acculeata. The morphometry, growth parameters, mortality (total, natural and fishing) rates, the yield per recruit and standing stock were studied.

The dynamics of industrial emergence

The need to stimulate, identify and nurture new industries is a prominent challenge in advanced economies. While basic science represents a valuable source of new ideas and opportunities, it can often take decades before this science finally finds application in the market. While numerous studies have to date focused on aspects of industrial evolution, (e.g. innovation, internationalisation, new product introduction, technological lifecycles and emerging technologies), far fewer have focused on technology-based industrial emergence. It is clear that if assistance is to be provided to firms and industrial policymakers attempting to navigate industrial emergence then we need an improved understanding of the characteristics and dynamics of this phenomenon. Accordingly, this paper reviews published work from a range of disparate disciplines - evolutionary theory, social construction of technology (SCOT), complexity science, industrial dynamics and technology management - to identify these dynamics. Through this review we conceptualise industrial emergence as a co-evolutionary process in which nonlinear dynamics operate. Industrial emergence is sensitive to the initial availability of resources and the market applications, with growth dependent on the supply-demand coupling, agents' actions to reduce uncertainty and catalytic events. Through synthesizing these key dynamics we go on to propose a conceptual model for industrial emergence. © 2010 IEEE.