Matti Pohjola

Cross-country diffusion of the Internet

This paper investigates the factors which determine the diffusion of the Internet across countries. The Gompertz model of technology diffusion is estimated using data on Internet hosts per capita for the year 1995-2000. [Discussion Paper No. 2001-11]

The New Economy: facts, impacts and policies

Abstract The world economy is undergoing a fundamental structural change driven by the globalization of business on the one hand and by the revolution in information and communication technology on the other. The New Economy is the superior economic structure that is expected to arise as an outcome of these two forces. The papers is this special issue attempt to assess the significance of the New Economy, to estimate its impacts on economic growth, location of production and on income and wealth inequality, and to evaluate its prospects for economic development. Policies for promoting the New Economy are also discussed.

Sustainable International Agreements on Greenhouse Warming — A Game Theory Study

Atmospheric concentrations of the greenhouse gases (e.g., CO2) are increasing rapidly due to human economic and industrial activity. The thermal balance of the earth is changed resulting in overall climate warming referred to as the “greenhouse effect”. The greenhouse effect is a global issue. Reducing damages caused by climatic changes requires major international efforts. Many countries bear the view that the joint efforts should be undertaken under international agreements. We present a dynamic game theory model for an international environmental negotiation problem that may arise in the context of global climate change. Our game theory setting is based on the fact that the countries differ in their vulnerability to the global warming and that two coalitions will possibly be formed. One coalition may include countries that do not suffer from global warming, or where the damages are minor, and in the other coalition we may have countries that suffer from the global warming. The greenhouse problem is modelled as an economic infinite-horizon differential game. The players negotiate an agreement among Pareto efficient programs. Since the costs of one player will be reduced in cooperation while the costs of the other will increase, transfer payments may be used in negotiating an agreement. Transfer payment programs are designed such that it is possible at any stage of the agreement to punish violations against cooperation and to discourage the other player from selfishly polluting the atmosphere. The use of memory strategies in designing self-enforcing agreements is discussed. The main conclusion is that the incentives for international cooperative control of global warming will become stronger with an accelerating speed.

Biased Technical Change and Capital-Labour Substitution in Finland, 1902-2003

The paper argues that a Cobb-Douglas specification may be a reasonable description of the Finnish aggregate production function when a sufficiently long time period (the 20th century) is considered. It is, however, a misleading description of the production technology for the post-WWII period. Controlling for biased technical change, the elasticity of substitution is significantly below one, close to 0.5, during 1945-2003. Given that similar results have been obtained for the U.S. economy, the analysis shows that the value of the elasticity of substitution cannot be dependent on some specific structure of economic institutions but is likely to reflect more general aspects of technology and production.

An Economic Analysis of Transboundary Air Pollution between Finland and the Former Soviet Union

The net benefits of bilateral cooperation between Finland and the former Soviet Union on reducing sulphur emissions are evaluated for both parties. The analysis is based on a sulphur transportation model and on estimated abatement cost functions. It is shown that efficient cooperation may entail financial transfers from Finland to the Soviet Union because it is cheaper to abate sulpher there. It is further demonstrated that a recently signed agreement aimed at reductions in air pollutants is not rational from the Soviet Unions viewpoint and may not, therefore, be carried out without monetary support from Finland. Copyright 1992 by The editors of the Scandinavian Journal of Economics.

Economic growth and income redistribution

This paper presents redisributive taxation and economic growth as a differential game in which the politically powerful poor (workers) control redistribution whereas the economically powerful rich (capitalists) control accumulation. Both groups are assumed to be interested in maximizing the sum of their own discounted consumption over an infinite horizon. The players use memory strategies which permit the construction of threats designed to sustain cooperation. Efficient equilibria imply income transfer from the rich to the poor in the long run. If the workers act as leaders in the game, almost all profits, net of the amount required to sustain growth, can be transfered for their consumption. The result is contrasted with some recent views on capital income taxation.