Refereed journal publications

Abstract: We examine the design of policies for promoting the consumption of green products under preference and income heterogeneity using organic food as an example. Two instruments are considered: a price subsidy for organic food products and a tax on conventional products. When the income differences and social benefits of organic farming are large, these factors dominate in shaping the policy preferences of the majority. In this case, the environmental policies preferred by the majority tend to be stricter than socially optimal policies. However, when income differences are small, policy preferences are more directly determined by tastes for organic products and the majority may prefer no intervention. [paper]

On the Political Economy of Housing’s Tax Status (with Niku Määttänen), The B.E. Journal of Macroeconomics 6(2) (Topics), Article 7 (2006)

Abstract: Most households have most of their wealth in the form of housing. We analyze how this distributional feature shapes the political economy of housing taxation. We build a simple dynamic general equilibrium model where households vote over the tax treatment of housing and business capital. The model is calibrated so as to match the joint distribution of financial wealth and housing wealth among US households. The median voter has a large share of his wealth in the form of housing and most of his income is wage earnings. The key trade-off he faces is that lowering the tax burden on business capital while increasing the tax burden on housing leads to higher wages but also increases his own share of the overall tax burden. [paper]

International Trade Agreements, Environmental Policy, and Relocation of Production, Resource and Energy Economics 28(4), 333-350 (2006)

Abstract: This paper studies the influence of free trade agreements on national environmental policies and location strategies of polluting firms. It is shown that banning export subsidies makes relocation of production more attractive for firms. When export subsidies are banned relocation is profitable because: 1) the rival firm reduces output due to more stringent emission regulation in the host country of the investment and 2) relocation leads to lower emission tax rate in the original home country of the investing firm. When export subsidies are used, the first effect is absent because the host government is able to use the export subsidy to compensate the negative effect of more stringent emission taxation on domestic shareholders.

Strategic Alliances, Joint Investment, and Market Structure (with Niku Määttänen), International Journal of Industrial Organization 22(2), 241-251 (2004)

Abstract: This paper examines strategic alliances (SAs) involving joint investments in and sharing of production capacity. We consider a situation where market entry is limited by the availability of an essential production capacity. New capacity becomes sequentially available, and the incumbent firms may form a strategic alliance in order to jointly invest in it. In this setting, SAs may influence competition in the product market by affecting market entry. We characterize the evolution of the market structure. We also show that SAs need not be anticompetitive. That is, banning SAs may lead to a more concentrated market structure than what would otherwise be the case.

Environmental Tax Competition in the Presence of Multinational Firms, International Tax and Public Finance 11(3), 283-298 (2004)

Abstract: We study the design of environmental policy in a two country model with an imperfectly competitive polluting industry. We show that when the firms are multinational, non-cooperative policy design leads to too severe emission taxation regardless of the mode of competition. The reason is twofold. First, when firms are multinational, changes in environmental policy do not influence the market shares of the firms. Second, when designing their policies, national governments ignore profits accruing to foreign shareholders of multinational firms.

Citizens should vote on secession (with Niku Määttänen and Panu Poutvaara), Topics in Economic Analysis and Policy 4(1), Article 23 (2004)

Abstract: The draft treaty establishing a constitution for the European Union states that each member state may withdraw from the European Union following its own constitutional requirements. We argue that such a rule could lead into an increased use of threat of withdrawal to extract concessions in intergovernmental negotiations. This problem would be exacerbated by national electorates facing an incentive to elect more confrontational politicians. We also suggest a remedy: EU constitution should require that withdrawal from EU membership must be approved by the voters of the withdrawing member state in a referendum. [paper]

Forest Conservation – Too Much or Too Little? A Political Economy Model, Environmental and Resource Economics 27(4), 391-407 (2004)

Abstract:This paper studies the formation of forest policy when the government is influenced by an environmental lobby and an industrial lobby representing a non-competitive wood processing industry. Government decides on forest conservation by way of restricting timber harvesting. Lobbying is modelled as a common agency game with differences in the efficiency of lobbying. A comparison of the political equilibria shows that an exporting forest industry faces a stricter conservation requirement than a forest industry whose production is destined for domestic markets. If the industrial lobby is more efficient than the environmental lobby, conservation is insufficient from the social point of view. However, conservation may be insufficient even if the environmental lobby is more efficient in lobbying than the industrial lobby. This is because the lobbying effort of the environmental lobby also benefits consumers that remain politically passive.