Vol. 5., No. 1

Torben M. Andersen:
Differential information and excessive volatility in financial markets (pp. 3–11)


It is analysed whether risk averse agents possessing different information have an incentive to trade in a zero-sum market. The key to generate trading in a zero-sum speculative market is whether expectations are »homogenized» through the trading process. If not, trading will take place and all agents expect to be able to exploit private information not fully revealed by market prices to make a speculative profit. The existence of a rational expectations equilibrium with heterogenous expectations is proven to exist, and shown to imply excessive volatility of prices and trading volumes.

Gerhard Clemenz and Mona Ritthaler:
Credit markets with asymmetric information: a survey (pp. 12–26)


We attempt to survey the most important implications of informational asymmetries in credit markets. First, we review the various explanations of equilibrium credit rationing, then we discuss their robustness if collateral and loan size are used as signals of credit worthiness. Then we show the importance of the modelling strategy for the conclusions derived about credit market equilibria. Finally, we discuss the role of different contracts and conclude by suggesting areas of further research.

Per Skedinger:
Employment determination in the Swedish wood industry: a test of the labor demand model (pp. 27–37)


The paper presents an empirical analysis of employment determination in the Swedish wood industry. The conventional labor demand model is tested against the alternative hypothesis that both wages and employment are subject to bargaining. The labor demand model is not supported by the data. Outside wages consistently influence wages negatively, so it is concluded that the alternative model of efficient bargains provides a better explanation of the results.

Tapio Palokangas:
Discrete exchange rate changes with real wage resistance (pp. 38–46)


Fixed exchange rate policy is examined when money wages are determined by collective bargaining for fixed periods. The main results are as follows. If the interest elasticity of aggregate demand is high and the contract periods in the labour market are long, then in the short run, a devaluation produces expansion but in the long run, contraction. Expectations on a future devaluation cause expansion before the occurrence of the devaluation and at the moment of the occurrence, domestic expenditure falls discontinuously.

Hannu Tervo:
The development of regional underutilisation of labour resources in Finland 1972–89 (pp. 47–60)


In this paper the regional utilisation of labour resources in Finland over the period 1972 – 89 is analysed. According to the results, underutilisation has increased in Southern Finland (excluding Uusimaa), while elsewhere the upward trend is not so apparent. Even though hidden unemployment has decreased at the expense of open unemployment, the hidden unemployment component remains the largest of the three components of regional underutilisation. The econometric analysis showed that regional differences in utilisation of labour resources tend to grow during upturns and diminish during downturns. Market conditions, however, seem to have no effect on regional underutilisation in the long run. The results concerning the effects of migration and regional policy were less clear. Some support was obtainedfor the hypothesis that underutilisation grows if barriers to migration increase.

Philip Mirowski:
Do economists suffer from physics envy? (pp. 61–68)


This paper summarizes and expands upon the thesis found in the author’s More Heat Than Light (1989) that the origins and rise to dominance of the neoclassical orthodoxy has been intimately linked to the history of physics. Problems of »physics envy» include a certain contempt for the history of economics, a tendency towards the uncritical appropriation of a limited range of mathematical formalisms, and constant intrusions by physical scientists seeking to upgrade the scientific status of the discipline.

Finnish Economic Papers 1/1992