Is the Optimal Labor Income Tax Progressive in a Unionized Economy?*

This paper concerns optimal nonlinear labor income taxation in an economy with union wage setting and endogenous hours of work. The purpose is to study the determinants of tax progression. We show that the optimal degree of progression of the labor income tax depends on the extent to which the government can influence the wage rate via tax policy as well as on its ability to redistribute income across individuals. In addition, the argument for progressive labor income taxation depends on whether hours of work are chosen by the employed themselves or the union.     

What Determines Real Exchange Rates? The Nordic Countries

The model derived in this paper yields testable implications concerning the long‐run co‐movements of real exchange rates, relative labor productivity, the trade balance and terms of trade. Countries with relatively higher output growth, trade deficits or improved terms of trade are found to have more appreciated real exchange rates, with the main channel of transmission working through the relative price of nontraded goods. Exogenous terms‐of‐trade shocks are found to be the most important determinant of long‐run movements in the real exchange rate for Denmark and Norway, while demand shocks account for most of the long‐run variance in the real exchange rate for Finland and Sweden.     

Price uncertainty and the effect of capital costs in a point in-point out inventory investment

This paper analyzes a point in-point out inventory investment under price uncertainty. The optimal quantity is determined by maximizing the expected value of the investor's risk preference function, which is a function of profit. Using an exponential risk preference function, the adjustment in the optimal quantity stemming from a change in the interest rate is investigated. The main conclusion is that the sign of the adjustment depends both on how profit is expressed and on the type of price distribution applied. Contrary to what is assumed in conventional managerial control practices, a rise in the interest rate might lead to an increase in the optimal quantity when present value serves as a measure of profit.     

The welfare effects of disclosure under cognitive dissonance

Atlantic Economic Journal -     

Co-branding on industrial markets

During the last decade branding has developed to be one of the main focus areas in consumer marketing. In the industrial marketing area there has only been limited attention to this phenomenon. In this paper we focus on how co-branding can be used on industrial markets to increase value. Through an empirical study of professional purchasers' attitudes towards co-branding activities between two companies, we explore the potential of this strategy.     

Business relatedness and performance: a study of managerial perceptions

Understanding of business relatedness and performance effects is the foundation of any diversification decision, but we have limited knowledge of how managers consider relatedness. This study identified relatedness classes and performance effects using perceptual survey data from top industrial executives. Four classes with significant variable differences were found: high, technology, customer, and low relatedness. Technology relatedness had a strong positive performance effect and high relatedness had a negative effect. The findings confirm that perceptions are multidimensional, but may include five key factors rather than the previously identified attribute categories of product–markets, resources, and value chains. Contributions to diversification literature are discussed. Copyright © 2006 John Wiley & Sons, Ltd.     

Wood Fuel or Carbon Sink? Aspects of Forestry in the Climate Question

This paper discusses and contrasts two mainroles of forestry in light of the debate on theglobal climate. As the main problem is relatedto the increases of the CO₂-concentrationin the atmosphere, forests may be viewed aspart of the alleviation of the problem throughtheir function as (i) a source of biomass forenergy production, which may replace fossilfuels and thus indirectly reduceCO₂-emissions, and as (ii) carbon storage,since a growing forest extracts atmosphericCO₂ and fixes it as carbon in biomass. Inthe Scandinavian forestry, logging residues areincreasingly being used for energy production.In this paper the value of forests as a sourceof bioenergy is added to the traditional timbervalue. Formulated as a joint production modelwithin the Faustmann framework, the effect ofthis addition on the optimal rotation length isdiscussed. Based on data for spruce, thedominant species in the Scandinavian forestry,it is demonstrated that the rotation length isshortened compared to the standard Faustmannmodel. Shorter rotation length implies lesscarbon storage. Therefore, in this modelwithout explicit regard to the social carbonstorage value of the forest, the gains in termsof the climate problem from utilisation offorest biomass for energy production are beingdiminished by the value of reduced carbonstorage. The carbon value of the forest is thenadded to complete the model, with the effect ofincreasing the rotation length, a result thatis well known in the literature. Finally, theempirical effects of the interaction of thesetwo climate-related value elements of theforest are discussed.     

Catching up and falling behind,a vintage model approach

The literature on catching up suggests that due to diffusion and imitation, relatively backward countries should grow at a faster rate. A model along lines suggested by Abramovitz is constructed to examine this. A country's change in productivity (technological gap) is supposed to depend on the productivity gap itself (relatively backwardness), social capability of adopting new technology, and R&D-activity. Together with a vintage growth model, this set-up gives a lot of different possible explanations of why growth rates differ among nations. The possibilities of both catching up and falling behind are considered.     

The Lévy LIBOR model

Models driven by Lévy processes are attractive because of their greater flexibility compared to classical diffusion models. First we derive the dynamics of the LIBOR rate process in a semimartingale as well as a Lévy Heath-Jarrow-Morton setting. Then we introduce a Lévy LIBOR market model. In order to guarantee positive rates, the LIBOR rate process is constructed as an ordinary exponential. Via backward induction we get that the rates are martingales under the corresponding forward measures. An explicit formula to price caps and floors which uses bilateral Laplace transforms is derived.     

Reserve Requirements,Liquidity Risk,and Bank Lending Behavior

Although reserve requirements (RR) have been used in emerging markets to smooth credit cycles, the transmission mechanism remains blurry. Using bank‐level data, we unveil the interaction of RR with bank lending. We identify a new channel that works through a decline in banks’ liquid assets and loan supply due to an increase in RR. “Quantitative tightening” through RR raises the short‐term funding needs of the banking system, which is met by collateralized central bank lending, thus depleting banks’ unencumbered liquid assets. Our results suggest that such a shift in bank liquidity is associated with a significant change in lending.