Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers

In the market for payment media, some consumers use only one medium when paying for their point-of-sale transactions, while others use many. This pattern reflects the diffusion of new payment media, because a payment method innovation is typically first used simultaneously with the established methods. We study the use of multiple payment media by employing data on young Finnish consumers. We find that the use of multiple payment media is directly related to consumer awareness and that not controlling for the endogeneity of awareness can bias its effect downwards. These results suggest that increasing consumer awareness may have been underlying the rise of debit card use around the world. I…

The effect of physical activity on long-term income.

Abstract Empirical evidence for the direct effects of physical activities on long-term labor market outcomes is limited. This state of affairs is surprising, because there is a growing amount of support on the positive effects of physical activities on health on the one hand and on the effects of good health on labor market outcomes on the other hand. We examine the long-term income effects of physical activity using a large sample ( N  = 5042) of male twins from Finland (Older Finnish Twin Cohort Study, 1975, 1981, 1990), matched to detailed register-based income data (Finnish Longitudinal Employer-Employee Data, 1990–2004). Our primary income measure is calculated over a fifteen-year peri…

Politics and Procurement: Evidence from Cleaning Contracts

We study the effects of politics on public procurement in Swedish municipalities in 199098 using data on cleaning services. No procuring municipality committed to a standard auction format or to an ...

Devil in disguise : does drinking lead to a disability pension?

Abstract Objectives To examine whether alcohol consumption in adulthood is related to the incidence of receiving a disability pension later in life. Methods Twin data for Finnish men and women born before 1958 were matched to register-based individual information on disability pensions. Twin differences were used to eliminate both shared environmental and genetic factors. The quantity of alcohol consumption was measured as the weekly average consumption using self-reported data from three surveys (1975, 1981 and 1990). The disability pension data were evaluated from 1990–2004. Results The models that account for shared environmental and genetic factors reveal that heavy drinkers are signifi…

If you drink, don't smoke : Joint associations between risky health behaviors and labor market outcomes

This paper examines the links between risky health behaviors and labor market success. We provide new evidence on the joint relationships between the most prominent forms of risky health behavior - alcohol consumption, smoking and physical inactivity - and long-term labor market outcomes. We use twin data for Finnish men and women linked to register-based individual information on earnings and labor market attachment. The twin data allow us to account for shared family and environmental factors and to measure risky health behaviors in 1975 and 1981. The long-term labor market outcomes were measured in adulthood as an average over the period 1990-2009. The sample sizes are 2156 and 2498 twin…

Opacity of young businesses: Evidence from rating disagreements

Abstract A conventional wisdom in the contemporary corporate finance literature argues that small and medium-sized enterprises (SMEs) are informationally opaque. We use data from two credit information companies and in particular their disagreements over the creditworthiness of SMEs to study the empirical relevance of this often invoked assumption. Our panel data analysis shows that once unobserved firm-effects are controlled for, the disagreements (i.e., rating splits) are inversely related to the age of firms. We are not able to document such a robust relationship between the disagreements and the size of firms. This finding holds a lesson for empirical corporate finance researchers who n…

Investor protection and business creation

We study the effects of investor protection on the availability of external finance, entrepreneurship, and creation of new firms in an equilibrium search model of private capital markets. In addition to search frictions, we examine contract frictions, specifically interim and ex post moral hazard problems stemming from entrepreneurs’ possibilities to expropriate financiers. In our model, the government chooses the level of investor protection that determines the transferability of match surplus between entrepreneurs and financiers. The results indicate that anything that increases (decreases) entrepreneurship also increases (decreases) the creation of start-ups. The effect of investor prote…

The labour market consequences of self-employment spells:European evidence

Hundreds of thousands of Europeans enter self-employment each year, but because self-employment spells are typically brief, many of them exit soon after entry. We examine how those who return to paid-employment fare on the labour market using the European Community Household Panel (ECHP). Like earlier evidence for the US, ours indicate that, in general, brief spells of self-employment do not increase average hourly earnings upon return to paid-employment. For highly educated men, an additional year of self-employment actually decreases their earnings by 4-5% relative to a year of continued wage employment. We also find that brief spells of self-employment are associated with increased proba…

Income Inequality and Technology Diffusion: Evidence from Developing Countries*

We study the effect of within-country income inequality on the diffusion of mobile phones using data on market penetration in a sample of developing countries from 1985 to 1998. Mobile phones are an example of international technology, originating in industrialized countries and diffusing worldwide. We find that income inequality, as measured by the income share of the highest earning deciles, has a positive effect on the early diffusion of mobile phones and that the estimated effect becomes greater when a measure of agricultural endowments is used as an instrument. The instrumental variable results are robust to weak instruments. Our findings suggest that the diffusion of new technologies …

Geneses of Labour Market Turnover: Job Search and Entrepreneurial Aspirations On-the-job

In this paper we study the labour market behavior of employed individuals that have entrepreneurial aspirations in addition to aspirations to switch job. We analyze empirically these two “search processes” side-by-side and report three main findings: First, neither entrepreneurial aspirations nor aspirations to switch job are uncommon, but only few are engaged in both search processes. Second, the two processes are not alike: It is more difficult to empirically explain entrepreneurial aspirations than aspirations to switch job. Only few observable characteristics of the employed are related to both processes. Varied experience and job dissatisfaction are directly related to the probability …

Stock Return Volatility on Scandinavian Stock Markets and the Banking Industry: Evidence from the Years of Financial Liberalisation and Banking Crisis

This paper investigates the evolution of the (conditional) volatility of returns on three Scandinavian markets (Finland, Norway and Sweden) over the turbulent period of the past decade, namely the overlapping periods of financial liberalisation, drastically changing macroeconomic conditions and banking crisis. We find that even over this relatively turbulent period volatility is in most cases successfully captured by past volatility and shocks to past volatility, ie by a (symmetric) GARCH process. In each country banking crisis has induced regime shifts in (unconditional) volatility. We also find evidence for cross-country volatility spillovers during the banking crisis episodes. The estima…

Monitoring and Market Power in Loan Markets

Whether or not banks are engaged in ex ante monitoring of customers may have important consequences for the whole economy. We approach this question via a model in which banks can invest in either information acquisition or market power (product differentiation). The two alternatives generate different predictions, which are tested using panel data on Finnish local banks. We find evidence that banks’ investments in branch networks and human capital (personnel) contribute to information acquisition but not to market power. We also find that managing customers’ money transactions enhances banks ability to control their lending risks.

Smoking and long-term labour market outcomes.

Objective To examine the long-term effects of smoking on labour market outcomes using twin data matched to register-based individual information on earnings. Method Twin data for Finnish men born 1945–1957 was used to remove the shared environmental and genetic factors. The results were subjected to extensive robustness testing. Lifetime cigarette consumption was measured by (cumulative) cigarette pack-years in early adulthood. The average of an individual's earnings (and, alternatively, taxable income) was measured over a subsequent 15-year period in later adulthood. Results Smokers have lower long-term income and earnings. For example, controlling for the shared environmental and genetic …

Olley–Pakes productivity decomposition: computation and inference

Summary We show how a moment-based estimation procedure can be used to compute point estimates and standard errors for the two components of the widely used Olley–Pakes decomposition of aggregate (weighted average) productivity. When applied to business level microdata, the procedure allows for autocovariance and heteroscedasticity robust inference and hypothesis testing about, for example, the coevolution of the productivity components in different groups of firms. We provide an application to Finnish firm level data and find that formal statistical inference casts doubt on the conclusions that one might draw on the basis of a visual inspection of the components of the decomposition.

Does innovativeness reduce startup survival rates?

There are two competing hypotheses explaining how innovativeness influences the survival of startups: On the one hand, innovativeness is argued to foster survival-enhancing attributes (e.g., market power and cost efficiency) and capabilities (e.g., absorptive capacity). On the other hand, an innovative startup faces (and bears the associated risks of) liabilities of newness and smallness that exceed those of its non-innovative counterparts. The available empirical literature addressing this theoretical tension mostly supports the former hypothesis; we suggest that this finding is, in part, driven by the common practice of employing an ex post measure that already embodies a degree of succes…

Lainsäädännön arviointineuvosto : lainvalmistelun vaikutusarviointia

Entrepreneurial optimism and survival

This paper uses entrepreneurs’ survival expectations around the time of market entry and subsequent venture exits to study entrepreneurial optimism. Using data on a large number of nascent entrepreneurs in the US and start-ups in Finland, we find that new entrepreneurs survival beliefs are on average optimistic but heterogeneous: Some are excessively optimistic, whereas a small subset holds unbiased beliefs. Entrepreneurial optimism is increasing in the relative (interpersonal) optimism and decreasing in entrepreneurs level of education and industry experience in both countries. At least in Finland, those holding optimistic views are more likely to transit into entrepreneurship.

Demand for and Pricing of Mobile Internet: Evidence from a Real-World Pricing Experiment

Commercialization of innovations frequently stumbles. A prominent recent example are the early (i.e. pre3G)mobile phone-enabled Internet services, whose European takeup was slower than expected. To determine why, we build a structural model of demand for such services and estimate it using consumerlevel panel data from a real world pricing experiment. The experiment allows for a decomposition of the number of wireless connections into the number of needs instances where a consumer would establish a connection if the price were zero and the conditional probability of establishing a connection. We find that needs were plenty and potential consumer surplus several magnitudes higher than that a…

Household Optimism and Borrowing

A unique Finnish household-level data from 1994 to 2009 allow us to measure how households’ financial expectations are related to the subsequent outcomes. We use the difference between the two to measure forecast errors and household optimism and link the errors to households’ borrowing behaviour. We find that households making greatest optimistic forecast errors carry greater levels of debt and are most likely to suffer from excessive debt loads (overindebtedness). They also are less attentive to forecast errors than their pessimistic counterparts when forming their expectations for a subsequent period.

Anatomy of Cartel Contracts

We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that large cartels agree on prices, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.

Firm Lifecycles and External Restructuring

This paper studies how firms contribute to the productivity growth of an industry over their lifecycle. We present a decomposition method that allows us to condition the components of productivity growth on the age of production units. We find evidence for a prolonged positive exit effect that mirrors market selection during the early stages of firms lifecycle. This effect is tightly related to the negative initial productivity effect of entry. We also find some evidence that productivity-enhancing reallocation of resources between firms is concentrated on the middle aged firms.

Recent Developments in the Finnish Banking Sector

In this paper we discuss recent developments in the Finnish banking sector. Our specific aim is to examine whether and to what extent recent developments in Finland are broadly in line with the trends common to banking sectors in Europe and also worldwide. We focus on developments in banks' profit and loss accounts, balance sheets and the market structure of the banking sector. In addition, technological developments are surveyed. As regards consolidation, the Finnish banking sector is a trendsetter. The emphasis in structural development has moved to cross-border banking and bank assurance. On the other hand, it turns out that it is difficult to track some of the trends that are believed t…

Heritability of Lifetime Income

Using 15 years of data on Finnish twins, we find that 24% (54%) of the variance of women’s (men’s) lifetime income is due to genetic factors and that the contribution of the shared environment is negligible. We link these figures to policy by showing that controlling for education reduces the variance share of genetics by 5-8 percentage points; by demonstrating that income uncertainty has a genetic component half the size of its variance share in lifetime income; and by exploring how the genetic heritability of lifetime income is related to the macroeconomic environment, as measured by GDP growth and the Gini-coefficient of income inequality.

Seat Competitiveness and Redistricting: Evidence from Voting on Municipal Mergers

We analyze how (anticipated) changes in the competitiveness of the seats of municipal councilors affect their voting behavior over municipal mergers. The competitiveness of the seats changes because the merger changes the composition of political competitors and the number of available seats in the next election. We use this variation for identification and find that the smaller the increase in the competitiveness of a councilor's seat, the more likely he is to vote for the merger. These effects are not related to the behavioral responses of the voters, but arise from the councilors’ desire to avoid electoral competition.

Time Use of the Self-Employed

SUMMARY It is a well-documented empirical regularity that it is more satisfying to be self-employed than to work as an employee for an organization. A large part of this difference in job satisfaction is attributed in the literature to the strong perception of independence by the self-employed. In this paper we study people's time use as a source of entrepreneurial independence. By making use of disaggregated sequential microdata on people's time use, we are able to document that the self-employed work longer effective hours, as well as more in the evenings and weekends, than those employed by an organization. Even though being able to decide when to do one's work may be a sign of flexibili…

Electoral vulnerability and size of local governments: Evidence from voting on municipal mergers

Abstract We analyze how anticipated changes in the electoral vulnerability of municipal councilors affect their voting behavior over municipal mergers. The electoral vulnerability changes due to a merger because it changes the composition of political competitors and the number of available seats in the next election. We use this variation for identification and find that the smaller the increase in the electoral vulnerability of a councilor, the more likely he is to vote for the merger. The documented effect is not driven by the behavioral response of the voters, or by party-line considerations. The councilors' desire to avoid personal electoral competition may lead to sub-optimally small …

Pienten ja keskisuurten yritysten rahoituksen saatavuus

Enhancing Bank Transparency: A Re-assessment

Transparency regulation aims at reducing financial fragility by strengthening market discipline. There are however two elementary properties of banking that may render such regulation inefficient at best and detrimental at worst. First, an extensive financial safety net may eliminate the disciplinary effect of transparency regulation. Second, achieving transparency is costly for banks, as it dilutes their charter values, and hence it also reduces their private costs of risk-taking. We consider both the direct costs of complying with disclosure requirements and the indirect transparency costs stemming from imperfect property rights governing information and specify the conditions under which…

When Do Employees Leave Their Job for Entrepreneurship?

Existing firms are argued to be an important source of new entrepreneurs. Yet, relatively little is known about the characteristics of firms that breed new entrepreneurs. We use a large linked employee–employer dataset to trace and characterize the types of firms which generate new entrepreneurs in Finland. We find that such transitions are rare and that smaller firms spawn new entrepreneurs more frequently than larger firms. We also find that firms' R&D intensity and, to a lesser extent, their productivity are negatively related to the probability that employees transit into entrepreneurship. These results are robust to controlling for a number of employee and employer attributes.

Multihoming in the Market for Payment Media: Evidence from Young Finnish Consumers

Tassa tutkimuksessa tarkastellaan sita, miksi jotkut kuluttajista kayttavat vain yhta maksuvalinetta ja toiset kuluttajat monia maksuvalineita maksaessaan paivittaisia ostoksiaan. Kayttamalla aineistoa nuorista suomalaisista kuluttajista loydamme, etta yksi tarkeimmista maksuvalineiden kayttoon vaikuttavista tekijoista on kuluttajien yleinen tietoisuus maksamiseen liittyvista kysymyksista. Instrumenttimuuttujaestimoinnit osoittavat, etta paremmin tietoiset kuluttajat kayttavat 1.2-1.3 kertaa useampaa maksuvalinetta kuin vahemman tietoiset kuluttajat. Koska monia uusia maksuvalineita kaytetaan usein aluksi olemassa olevien maksuvalineiden rinnalla, tuloksemme tukevat nakemysta, etta kuluttaj…

Forecasting Errors of New Venture Survival

This article studies entrepreneurs' forecast errors around market entry. Using data on nascent entrepreneurs in the U.S. and start-ups in Finland, we find that besides being overoptimistic on average in both countries, entrepreneurs' survival expectations can barely distinguish survival from exits. Moreover, about one fourth of the entrepreneurs do not provide an estimate for the survival of a typical venture. However, among those that do provide it, the estimates are less overoptimistic. We also compare the forecast accuracy of entrepreneurs to those of macroeconomic forecasters. Our findings provide guidance for the development of positive theories of entrepreneurial belief formation and …

Cartels Uncovered

How many cartels are there? The answer is important in assessing the efficiency of competition policy. We present a Hidden Markov Model that answers the question, taking into account that often we do not know whether a cartel exists in an industry or not. Our model identifies key policy parameters from data generated under different competition policy regimes and may be used with time-series or panel data. We take the model to data from a period of legal cartels - Finnish manufacturing industries 1951 - 1990. Our estimates suggest that by the end of the period, almost all industries were cartelized.

What Distinguishes a Serial Entrepreneur?

We analyze serial entrepreneurship using a unique cross-sectional survey of employees that is for this study linked with longitudinal, register-based employer-employee data. Serial entrepreneurship accounts for nearly 30% of the transitions from paid employment into entrepreneurship. What make an entrepreneur serial are her aspirations and her ability to go ahead and live by them. Specifically, we document that having worked in the past as an entrepreneur increases both the probability that a person presently in paid employment aspires to again become an entrepreneur and , holding the aspirations constant, the probability of her again becoming an entrepreneur. We also find that an employee …

Yhteiskunta kaipaa vastauksia moniin mikrotaloustieteellisiin kysymyksiin

Does Regression Discontinuity Design Work? Evidence from Random Election Outcomes

We use data for 198121 candidates and 1351 random election outcomes to estimate the effect of incumbency status on future electoral success. We find no evidence of incumbency advantage using data on randomized elections. In contrast, regression discontinuity design, using optimal bandwidths, produces a positive and significant incumbency effect. Using even narrower bandwidths aligns the results with those obtained using the randomized elections. So does the bias-correction of Calonico et al. (forthcoming). Standard validity tests are not useful in detecting the problems with the optimal bandwidths. The appropriate bandwidth seems narrower in larger elections and is thus context specific.

Public Employees as Politicians: Evidence from Close Elections

We analyze the effect of municipal employees’ political representation in municipal councils on local public spending. We use within-party, as-good-as-random variation in close elections in the Finnish open-list proportional election system to quantify the effect. One more councilor employed by the public sector increases spending by about 1%. The effect comes largely through the largest party and is specific to the employment sector of the municipal employee. The results are consistent with public employees having an information advantage over other politicians, and thus, being able to influence policy.

Household optimism and overborrowing

We use Finnish household-level data from 1994 to 2013 to measure how often and what kind of forecast errors households make and how the errors are linked to the households' borrowing behavior and overindebtedness. We find that those households that make the largest optimistic forecast errors have greater debt-to-income ratios. They also are more likely to report that they suffer from excessive debt loads and have problems in coping with their bills. There are no such systematic effects for the households that make pessimistic forecast errors. peerReviewed

When does Regression discontinuity design work? Evidence from random election outcomes

We use elections data in which a large number of ties in vote counts between candidates are resolved via a lottery to study the personal incumbency advantage. We benchmark non‐experimental regression discontinuity design (RDD) estimates against the estimate produced by this experiment that takes place exactly at the cutoff. The experimental estimate suggests that there is no personal incumbency advantage. In contrast, conventional local polynomial RDD estimates suggest a moderate and statistically significant effect. Bias‐corrected RDD estimates that apply robust inference are, however, in line with the experimental estimate. Therefore, state‐of‐the‐art implementation of RDD can meet the re…

Alcohol Consumption and Long-Term Labor Market Outcomes

This paper examines whether alcohol consumption is related to long-term labor market outcomes. We use twin data for Finnish men and women matched to register-based individual information on employment and earnings. The twin data allow us to account for the shared environmental and genetic factors. The quantity of alcohol consumption was measured by weekly average consumption using self-reported data from three surveys (1975, 1981 and 1990). The average of an individual's employment months and earnings were measured in adulthood over the period 1990–2009. The models that account for the shared environmental and genetic factors reveal that former drinkers and heavy drinkers both have almost 2…

Law of Finance: Evidence from Finland

Although it is widely acknowledged that the benefits of corporate governance reform could be substantial, systematic evidence on such reforms is scant. We both document and evaluate a contemporary corporate governance reform by constructing 18 measures of shareholder and creditor protection for Finland for the period 1980-2000. The measures reveal that shareholder protection has been strengthened whereas creditor protection has been weakened. We also demonstrate how the reform is consistent with a reorganisation of the Finnish financial market in which a bank-centred financial system shifted from relationship-based debt finance towards increasing dominance by the stock market. We find evide…

Investor Protection and Business Creation

We study the effects of investor protection on the availability of external finance, entrepreneurship, and creation of new firms in an equilibrium search model of private capital markets. In addition to search frictions, we examine contract frictions, specifically interim and ex post moral hazard problems stemming from entrepreneurs' possibilities to expropriate financiers. In our model, the government chooses the level of investor protection that determines the transferability of match surplus between entrepreneurs and financiers. The results indicate that anything that increases (decreases) entrepreneurship also increases (decreases) the creation of start-ups. The effect of investor prote…

Ovatko hyvät johtamismenetelmät talouskasvun lähde?

Design of Public Procurement Auctions: Evidence from Cleaning Contracts

We analyze a regime change from beauty contests to first-price sealed-bid and scoring auctions, using Swedish data on public procurement of cleaning services. In beauty contests, the lowest bid often lost, leaving substantial money on the table. The procurement costs were similar before and after the regime change: (i) Entry strongly decreases the procurement cost but did not change. Entry would have decreased had the municipalities not adjusted the objects of auctions. (ii) Municipalities favored in-house suppliers in the old regime, leading to more aggressive bidding by others. With favoritism reduced, these changes balanced each other out. Peer reviewed

The Return-to-Entrepreneurship Puzzle

The returns to entrepreneurship are monetary and non-monetary. We offer new evidence on these returns using a large sample of genetically identical male twins. Our within-twin analysis suggests that OLS estimates are downwards, and traditional first-differenced panel data estimates upwards biased. We find no differences in the earnings of men with either low or high education. Our within-twin analysis of non-monetary returns shows that entrepreneurs with low education work longer hours and have greater responsibilities, but also face a reduced risk of divorce and less monotonous work tasks. The same does not apply to highly educated entrepreneurs.

On the Returns to Invention within Firms: Evidence from Finland

International audience; In this paper we merge individual income data, firm-level data, patenting data, and IQ data in Finland over the period 1988–2012 to analyze the returns to invention for inventors and their coworkers or stakeholders within the same firm. We find that: (i) inventors collect only 8 percent of the total private return from invention; (ii) entrepreneurs get over 44 percent of the total gains; (iii) bluecollar workers get about 26 percent of the gains and the rest goes to white-collar workers. Moreover, entrepreneurs start with significant negative returns prior to the patent application, but their returns subsequently become highly positive.

Replication data for: Cartels Uncovered

How many cartels are there, and how long do they live? The answers to these questions are important in assessing the need for competition policy. We present a Hidden Markov Model that takes into account that often it is not known whether a cartel exists or not. We take the model to data from a period of legal cartels—Finnish manufacturing industries 1951–1990. Our estimates suggest that once born, cartels are persistent; by the end of the period, almost all industries were cartelized.

Replication data for: On the Returns to Invention within Firms: Evidence from Finland

In this paper we merge individual income data, firm-level data, patenting data, and IQ data in Finland over the period 1988–2012 to analyze the returns to invention for inventors and their coworkers or stakeholders within the same firm. We find that: (i) inventors collect only 8 percent of the total private return from invention; (ii) entrepreneurs get over 44 percent of the total gains; (iii) bluecollar workers get about 26 percent of the gains and the rest goes to white-collar workers. Moreover, entrepreneurs start with significant negative returns prior to the patent application, but their returns subsequently become highly positive.