Vol. 2, No. 2

Costat Azariadis:
Rational expectations equilibria with Keynesian properties (pp. 99–105)

Mikko Puhakka:
A model of implicit contracts without precommitment on employment (pp. 106–115)


The purpose of this paper is to analyze an optimal one-period labor contract between one firm and one worker when there is no precommitment on employment. I assume, instead, that implementation is the responsibility of a third party (e.g. court of law) that observes only the wage rate and the state of nature. Under these informational assumptions the first-best contract is no longer attainable even though the state is publicly observed. It is demonstrated in this paper that (i) either the worker or the firm is rationed in every state of nature, except possibly in one state; (ii) the firm is rationed in low states; (iii) the contract stipulates the wage rate and the employment level to be increasing functions of the state whenever the firm is rationed.

Ülo Ennuste:
Some models of stochastic planning mechanisms (pp. 116–124)


Alternative models of stochastic planning mechanisms of an abstract socialist economy are studied. The mechanisms are based on the decentralization of the initial optimal planning model. The main attention is paid to mixed stochastic coordination (prices and limits) of agents with Benassy’s (1986) competitive mechanism. The implementation of optimal plans is demonstrated. The models
of mechanisms studied are theoretically interesting, but they are oversimplified for practical results, and in order to come closer to reality, a more realistic set of assumptions should be made as a starting point.

Tiit Kallaste:
Comprehensive assessment of the level of air pollution (pp. 125–136)


The paper discusses methodological problems concerning the integral assessment of atmospheric air pollution. An approach to a generalized, comprehensive assessment of pollution that takes into account different degrees of harmfulness of pollutants to human beings in case of equivalent violations of standards is introduced. A technique for finding a synthetic comprehensive index, the so-called air pollution index, is described, and practical applications using large lowns in North-Estonia are analyzed.

Pekka Ilmakunnas:
Tests of the efficiency of some Finnish macroeconomic forecasts: An analysis of forecast revisions (pp. 137–146)


The efficiency of the forecasts made by the Research Institute of the Finnish Economy for the growth rates of the major GDP categories is studied. The efficiency tests are based on the correlation patterns of successive revisions of forecasts of the same event. The results show signs of inefficiency in some of the forecasts for GDP, exports, imports, and government investment and consumption. Alternative interpretations of such correlations include genuine informational inefficiency, smoothing of changes in the forecasts, and the effect of autocorrelation in successive data revisions.

Antti Talvitie and Tom Bäkström:
Analysis of technology of bus firms (pp. 147–159)


The study examines the structure of technology of (Finnish) bus companies. Economies of scale and scope, effect of service type and peaking on the average costs, substitution of factors of production, and technical change are analyzed. The majority of the Finnish bus companies operate at too low a level of production to be cost efficient. With »average» product mix the optimum level of output is 6.5 million bus kilometers per year on the Finnish market. The companies can obtain a cost advantage by having a versatile product-mix. The marginal costs of (six) service types change together with the productmix. The peak period marginal costs are similarly dependent on the productmix which influences how efficiently the capacity, often acquired to satisfy the peak period demands, can be utilized outside the peak period.

Timo Tyrväinen:
A guide to the Finnish labour market (pp. 160–175)


This article evaluates the fundamental characteristics of the Finnish labour market. In fact, if one wishes to verify the favourable effects of increasing »corporatism» in an empirical context, Finland should be an obvious candidate. It is hard to find an industrialized economy where the salient features of the labour markets have challged so much in such a short space of time. In this article a bargaining approach incorporating the key role of unions in wage setting is applied. All analysis is made of basic trends in those factors which theoretical considerations imply as being relevant. The role of incomes policy is also evaluated. The explosion in the »wedge» between product wages and aftertax consumption wages appears to have contributed to employment losses in the latter half of the 1970s. It cannot, however, be blamed for the sluggish demand for labour in most of the 1980s.

Markus Sovala:
The oil crises: The reason for Finnish stagflation (pp. 176–189)


In this article Michael Bruno and Jeffrey Sachs’ theory of stagflation in the 1970’s is evaluated with regard to Finland. They argue that a rise in the price of energy and raw materials together with real wage rigidity caused profit rates and demand for labour to fall. Theoretical and empirical arguments concerning the validity of Bruno and Sachs’ theory are dealt with. The results of a wage equation study show some negative response in real wages when the price of materials rises.

Finnish Economic Papers 2/1989