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Current research in Economics

The Department of Economics at the University of Otago produces outstanding research

From macroeconomic dynamics and global trade to economics education and interdisciplinary research – our staff are highly research productive. Take a look at some of our research in progress, conducted by:



David Fielding

1) Explaining price dispersion across locations (with Chris Hajzler, Central Bank of Canada)

Our most recent paper is “Distance, language, religion, and the Law of One Price: Evidence from Canada and Nigeria” (forthcoming in the Journal of Money, Credit & Banking). Our results confirm that the connectedness of local markets (as measured by e.g. the size of average price variations across cities or the length of time it takes prices to converge) depends not only on physical distance and transportation costs but also on differences in language and religion. In Nigeria, the most important factor is the proportion of people in each city who share a common language, and shared English language fluency is especially important. One of the benefits of language education is to generate better trading links. These links might also reduce political extremism (see 2).

2) The dynamics of ethnic and religious fractionalization (with Stephen Knowles, and Charles Butcher, Peace & Conflict Studies, University of Otago)

We are embarking on a ‘big data’ project that uses information from the USAID Demographic and Health Survey, a household survey which runs every 5-6 years in almost every low-income country in the world. We’re going to try to create a dataset that shows the pattern of ethnic and religious diversity within countries: e.g., if there are two or three main ethnic groups in a country, are they mixed together or do they live in separate regions? As far as we know, there is no systematic data of this kind in existence. Using different rounds of the survey, we can do this for different years, and look at how changing patterns of diversity interact with economic shocks (e.g. droughts which force people to migrate) and with changes in the intensity of violent conflicts. This project is focussed mainly on low-income countries, but I am also working on historical European data that might be able to help us track the dynamics of ethnic fractionalisation over centuries. One preliminary finding here is that English towns which allowed Jews to settle in the 12th and 13th centuries have much lower levels of antipathy towards immigrants in 21st century opinion polls, and lower support for UKIP. This result holds even when we allow for a whole range of other factors that might explain attitudes to immigrants (e.g. education and unemployment). Edward III expelled all the Jews from England in 1290, and modern anti-immigrant sentiment focusses mainly on Muslim and Eastern European immigrants, so it seems that the persistence is in some generic characteristic that is not specific to a certain socioeconomic context.

3) African banking (with Svetlana Adrianova (Leicester), Panicos Demetriades, (Leicester), Robert Lensink (Groningen), Badi Baltagi (Syracuse), Thorsten Beck (Cass Business School), Peter Rousseau (Vanderbilt), Johan Rewilak (Huddersfield), Steven Koch (Pretoria) and Stephen Hall (Leicester)

The group has just finished putting together a database that allows us to construct a range of alternative measures of financial fragility and susceptibility to banking crises. We were originally going to focus just on Africa, but the database has been expanded to cover most parts of the world. One question to work on is: how do our measures compare with private agencies’ credit ratings?

Read David's Staff Profile.

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Murat Genç (with Murray D. Smith, University of Nottingham)

Participation and Wage gaps in the New Zealand Labour Market: An Analysis Using Copulas

Using data from the Statistics New Zealand’s 2003 CURF (Confidentialised Unit Record File) data set, we estimate wage regressions taking account of sample selection bias arising from the exclusion of individuals with no market income. We use the copula approach in the specification of sample selection models. We find evidence of a statistically and economically significant female/male differential. Ethnicity, however, is found to matter for certain groups only, not for Māori.

Murat Genç (with Tony Blakely, Nhung Nghiem, and Nick Wilson, University of Otago, Wilma Waterlander, Helen Eyles, and Cliona Ni Mhurchu, University of Auckland, and Linda Cobiac, University of Oxford)

A Novel Approach to Improving Price Elasticity Estimation: An Experimental Study Using a Virtual Supermarket and Bayesian Methods

The aim of this study is to quantify precisely the impacts of price changes on food purchases. The research will be undertaken using a combination of experimental, econometric and biostatistical methods, and using a 3-D web-based virtual supermarket research setting. Virtual Supermarkets (VS) have previously been used to estimate changes in purchasing in response to price and labeling changes – but not (to our knowledge) to generate a full experimental dataset of price and food purchasing that is then analysed with econometric methods to estimate price elasticities. We will implement a VS experiment with 1000 New Zealand shoppers using price variations that are most relevant to food tax and subsidy policies of interest so as to improve estimation of PEs.

Murat Genç (with Selim Çağatay, Akdeniz University)

International Trade Costs of Turkey

The purpose of this research is to measure overall international trade costs of Turkey and to determine the relative significance of the different factors that contribute to these costs. The econometric methodology makes use of a recently developed comprehensive measure of trade costs.

Murat Genç (with Ivan Diaz-Rainey and Helen Roberts, University of Otago)

Educational Performance, ‘Clicker’ Engagement and Ethnicity: Evidence from Finance 101

We explore the nexus between academic performance, ethnicity and student engagement via learning technologies. More specifically, we explore three research questions (1) What factors determine student ‘clicker’ based engagement? (2) Does engagement improve academic performance? (3) Do Māori and Pacific Island (MPI) students under perform their peers and do the determinants of performance differ to those of their peers?

Murat Genç (with Ivan Diaz-Rainey, Max Yap, and Rosalind Whiting, University of Otago, John K. Ashton, Bangor University)

The Determinants of Regulatory Responses to Risks from Financial Innovation: Survey Evidence from G20

Which factors shape the extent and scope of financial regulation? This question is addressed through determining whether distinct institutional characteristics and the extent of lobbying have affected the response of G20 countries to a Financial Stability Board (FSB) recommendation aimed at mitigating the risks from financial innovation. Using a formal content analysis of the FSB’s Implementation Monitoring Network Surveys of 2010 to 2012, we develop an index of disclosed strength of regulatory responses and a count variable of implemented measures; these are employed to ascertain if regulatory responses are systematically influenced by the structure of the regulatory system, role of the central bank, the legal system, financial history and prevailing forms of firm financing.

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Paul Hansen (with Franz Ombler, 1000Minds Ltd, and colleagues from Otago’s Department of Economics and around the world)

Decision-making and conjoint analysis, myriad applications

1000Minds software (www.1000minds.com) is an online suite of tools and processes for ranking, prioritising or choosing between alternatives in decision-making situations where a variety of objectives or criteria need to be considered simultaneously; i.e. Multi-Criteria Decision Analysis (MCDA) and Conjoint Analysis (a.k.a Discrete Choice Experiments). Depending on the application, budgets or other scarce resources can be allocated across competing alternatives – typically in pursuit of ‘value for money’. 1000Minds emerged from our research into methods for prioritising patients for elective surgery, and was quickly acknowledged as being an exciting new approach to MCDA and Conjoint Analysis. 1000Minds is used by researchers at 100+ universities and other organisations worldwide, and also for teaching. More than 400 research projects involving 1000Minds have been completed or are underway – see www.1000minds.com/academic. Free licenses for research and study that’s not funded commercially or from research grants are available from www.1000minds.com/academic/academic-awards. If you are looking for inspiration for research topics, visit www.1000minds.com/academic/research-ideas.

Read Paul's Staff Profile


Alfred Haug (with Syed Basher, East West University, Bangladesh, and Fikra Research & Policy, Qatar, and Perry Sadorsky, York University, Canada)

The impact of oil shocks on exchange rates

This project examines the empirical relationship between oil shocks and real exchange rates for oil-importing and oil-exporting countries. A non-linear framework is used for modelling the effects of various oil shocks, depending on their origin. In this research, we detect significant appreciation pressures in oil-exporting economies after oil demand shocks, but no such pressure is detected for oil supply shocks. Global economic demand shocks affect both oil-exporting and -importing countries, but the adjustments of exchange rates may differ according to their relative competitiveness in international markets. The results lend support to the presence of regime switching in real exchange rates. Various extensions of the basic model are possible and we are pursuing those.

Alfred Haug (with Anna Sznajderska and Tomasz Jędrzejowicz, both at the National Bank of Poland)

Combining monetary and fiscal policy for small open economies

This research combines a monetary structural vector-autoregression (SVAR) with a fiscal SVAR for Poland. A novel feature is that fiscal foresight, in the form of implementation lags, is accounted for with respect to both discretionary government spending and tax changes. We demonstrate the importance of combining monetary and fiscal transmission mechanisms, which has mostly been ignored in the literature. However, we find that ignoring fiscal foresight has no statistically significant effects. We calculate an initial government spending multiplier of 0.70, which later peaks at 1.61. This multiplier is much larger than multipliers estimated in previous studies not combining monetary and fiscal policy. On the other hand, the tax multiplier is close to zero.

Alfred Haug (with Kim Economides, Flinders Law School, Australia, and Joe McIntyre, Charles Darwin University, Australia)

Timeliness in civil justice

This project proposes a new perspective on ‘timeliness’ through developing novel statistically testable hypotheses and methodologies to explain behavioural and structural determinants of civil case disposition time. Our proposed more comprehensive methodology presents a powerful explanatory tool to inform future empirical investigation, as well as laying foundations for the creation of robust time standards against which civil courts can be more accurately measured, monitored and compared across jurisdictions.

Alfred Haug (with Tugrul Vehbi and Oscar Parkyn, The Treasury, New Zealand)

The macroeconomic effects of discretionary tax changes

Legislated discretionary tax changes in New Zealand are studies in regards to their empirical effects on output, interest rates, inflation and exchange rates over time. The methodology is based on narrative methods and allows for the estimation of tax multipliers. Their size has been a controversial issue in macroeconomics in the aftermath of the recent global financial crisis and the ensuing sovereign debt crises in European countries. This research tries to pin down the size of the multiplier for New Zealand using recently developed state-of-the-art empirical methods.

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Mohammad Jaforullah (with Alan King)

The determinants of CO2 emissions

This research investigates the determinants of CO2 emissions using cointegration and Granger-causality analysis. The potential for these emissions to be mitigated through the use of carbon taxes and/or increased reliance on renewable and/or nuclear energy sources is also explored.

Mohammad Jaforullah (with Alan King)

The determinants of oil imports

In this study we estimate the sensitivity of NZ’s oil imports to price and income changes. The cointegration methodology employed enables the sensitivity of the NZ economy to oil shocks to be investigated as well.

Mohammad Jaforullah (with Alan King)

The relationship between energy consumption and economic growth in New Zealand

Does economic growth drive energy consumption, or does the supply of energy determine economic growth? Or are both true? This study investigates the relationship between the two using Granger causality analysis.

Read Mohammad's Staff Profile.

Viktoria Kahui (with B. Moyles, Massey University, and A. Brunell, Florida Fish and Wildlife Conservation Commission)

Price matters for size: optimal foraging theory and selective harvesting of alligators in Florida

We analyse alligator harvest data in Florida between 2000 and 2012, which includes information on length, location, prices and output of harvested animals. Optimal foraging theory suggests that hunters will always take alligators of higher length, while alligators of smaller length move in and out of the optimal foraging set according to price variation, i.e. when revenue goes up (primarily driven by changes in the price of hides), the minimum length of alligators hunted goes up.

Viktoria Kahui (with C. Armstrong and G.K. Godwin, University of Tromso)

Bioeconomic analysis of habitat-fishery connections – fishing on cold water coral reefs

We develop a bioeconomic model to study habitat-fishery connections such as cold water coral habitats, which are negatively affected by bottom trawling but remain unaffected by stationary gear harvest. We find that when coral is a preferred habitat, the fish and coral stocks become substitutes in terms of unit cost savings of harvest, while an essential habitat implies competing cost and growth effects. We apply data from a case study of the North East Atlantic cod fishery, which suggests that the model results are reasonably robust.

Viktoria Kahui (with C. Armstrong, University of Tromso)

A bioeconomic model for orange roughy fisheries on cold water corals in New Zealand.

We extend the standard bioeconomic fisheries model to include interactions with a habitat that induces fish aggregations. Bottom trawling for orange roughy fish in New Zealand occurs both on known tracks and on seamounts with pristine cold water coral, which are excessively slow-growing. Fishers face a trade-off between trawling on known tracks with low catch per unit of effort (CPUE) or investing in exploratory efforts to find unfished seamounts where CPUE is high, i.e. bottom trawling has the effect of destroying the cold water coral irreversibly and rapidly declining CPUE motivates fishers to progressively move from fished to unfished seamounts. Our model captures the trade-off in unit harvest costs and exploratory effort for orange roughy theoretically, explaining why a profit-maximising industry may rationally opt to drive an optimal fish stock level to a very low level, and maybe even extinction.

Viktoria Kahui (with N. Foley and C. Armstrong, University of Tromso)

A production function analysis of fisheries and habitat - open access versus optimal management

We apply a bioeconomic production function approach to fisheries and habitats, in order to assess possible consequences of habitat loss. Unsurprisingly, it is shown that habitat levels matter under optimal management as they directly impact upon profits, but exogenous habitat degradation impacts upon profits disproportionally more at low levels of habitat. Marginal harvest gains from preserving habitat depend on both the management regime and the equilibrium stock size. The harvest gains from reducing negative habitat effects may be greater under open access in a high cost fishery, but greater under optimal management in a low cost fishery. Using time series data for Icelandic redfish fisheries and estimates of cold water coral decline, we estimate parameters for the model, and indicate potential losses for open access and optimal management when habitat is not taken into account in this fishery. The results support the theoretical predictions, underlining the importance of taking into account habitat -fisheries interactions.

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Alan King (with Carlyn Dobson, Nottingham Business School, Nottingham Trent University)

The income convergence hypothesis

This research investigates whether per capita income levels in developing economies are converging to that of the United States using linear and nonlinear unit root tests.

Alan King

The anchoring effects of an inflation target

This research examines the time-series properties of inflation expectations in New Zealand to determine whether agents’ expected long-run rate of inflation conforms to the official inflation target.

Mohammad Jaforullah (with Alan King)

The determinants of CO2 emissions

This research investigates the determinants of CO2 emissions using cointegration and Granger-causality analysis. The potential for these emissions to be mitigated through the use of carbon taxes and/or increased reliance on renewable and/or nuclear energy sources is also explored.

Mohammad Jaforullah (with Alan King)

The determinants of oil imports

In this study we estimate the sensitivity of NZ’s oil imports to price and income changes. The cointegration methodology employed enables the sensitivity of the NZ economy to oil shocks to be investigated as well.

Mohammad Jaforullah (with Alan King)

The relationship between energy consumption and economic growth in New Zealand

Does economic growth drive energy consumption, or does the supply of energy determine economic growth? Or are both true? This study investigates the relationship between the two using Granger causality analysis.

Read Alan's Staff Profile.

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Stephen Knowles and Maroš Servátka (University of Canterbury) and Trudy Sullivan

Deadlines, Procrastination, and Inattention in Charitable Giving: A Field Experiment

We conduct a field experiment to analyse the effect of deadline length on charitable giving. Participants, drawn at random from the New Zealand electoral roll, are invited to complete an online survey, with a donation going to charity if they do so. Participants are given either one week, one month or no deadline by which to respond. Donations are lowest for the one month deadline, and higest when no deadline is specificed, consistent with the model of inattention developed in Taubinsky (2014), and also with the idea that not specifying a deadline sends a singal that an urgent response is required, reducing the scope for procrastination.

Stephen Knowles and Trudy Sullivan

Giving to local versus international charities

When giving to charities, do private donors have a preference for giving to charities who help people in need in the home country, or to international development charities who help people in need in poor countries overseas? What reasons do people give for choosing to support a charity with a local or overseas focus? To answer these questions we conduct a field experiment where participants are told that if they complete an online survey, the researchers will make a donation to one of two charities, with the participant choosing the charity. The two charities are World Vision and the Salvation Army. Both are high profile charities, and both are faith-based. The key difference between the two charities is that donations to World Vision help families in need in poor countries overseas, whereas donations to the Salvation Army help people in need in New Zealand. We also give participants the opportunity to comment on why they chose the charity they did, and conduct a qualitative analysis of the reasons given. The Salvation Army is chosen by 71 percent of participants, with the most common reason for choosing the Salvation Army being that “charity begins at home”. We plan to quantitatively analyse whether any of the demographic characteristics of participants (e.g. gender, age group, income level) are correlated with the choice of charity.

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Dorian Owen

Competitive balance and competition design in sports leagues

Competitive balance (CB), how evenly teams are matched, is a central concept in the economic analysis of sports leagues. This study develops measures of CB that take into account key characteristics of competition design (especially the nature of playing schedules, draws worth different proportions of a win, bonus points, and ‘multiple prizes’ in a single league), features generally ignored in commonly used CB measures. Econometric analysis of different sports is used to reveal which of these measures are most relevant for fans’ interest and the implications for competition design are considered.

Dynamic within-season measures of competitive balance in sports leagues

Most measures of within-season competitive balance (CB) focus on end-of-season outcomes such as final win percentages. This study examines the evolution of CB as the season progresses and the implications for fans’ interest in individual matches and overall interest in the league.

Fundamental determinants of economic development

Several recent influential empirical studies have used simple models to attempt to identify the fundamental factors that underpin long-term growth and development. This empirical literature is characterised by the ingenious nature of many of the instruments used. However, scepticism remains about their ability to provide a valid basis for causal inference. This research examines the extent to which more emphasis on the statistical dimensions of selecting instrumental variables, through consideration of the statistical adequacy of the implicit reduced form, can usefully complement economic theory as a basis for assessing instrument choice.

Information technology and labour productivity in New Zealand (with Nathan Spence, NZ Treasury)

Using panel time-series data for 26 industries over the period 1980-2010, this study examines the average effect of information and technology (IT) capital on labour productivity growth in New Zealand. Unlike the majority of the literature on the productivity effects of IT, the estimation and testing methods adopted allow for heterogeneous relationships between IT and labour productivity across industries, unobserved industry common factors and cross-section dependence, as well as non-stationary time-series properties of the data.

Health and economic growth

Theoretical and micro-level studies suggest that improved health status has a positive effect on productivity. However, recent work by Acemoglu and Johnson (2007) argues that, even though health improvements may directly enhance welfare, their effect on economic growth at the aggregate level does not significantly increase per capita income. This research project analyses different aspects of the two-way aggregate relationship between improvements in health status and economic growth using cross-section, time-series and panel data methods.

Global warming and per capita income (with Eng Joo Tan)

This analysis aims to identify the short-run and long-run effects of changes in temperature and precipitation on per capita income by examining year-to-year fluctuations in these variables in Dell et al.’s (2012) panel data set for 120 countries for the period 1960-2005. The analysis complements Dell et al.’s analysis by allowing for stochastic trends in temperatures and heterogeneity in the effects across countries.

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Arlene Garces-Ozanne (with Rick Audas, Memorial University of Newfoundland and Edna Kalu, University of New Brunswick)

Wealth, Empowerment, Health and Happiness

Models examining the determinants of health tend to focus on the role of the physical environment, access to medical services and individual’s material well-being as being the important drivers of health outcomes. A less well-explored idea is the sense of empowerment or the idea that an individual has control over one’s own destiny. We hypothesise that where there is a greater sense of self-determination, or empowerment, that this will have positive health and happiness benefits. We believe this sense of empowerment can be captured by the entrepreneurial environment and the level of corruption that exists in that nation. We further hypothesise that happiness – which economists and others with interests in social policy are increasingly treating as an important economic outcome – will also be positively affected by this sense of empowerment.

Arlene Garces-Ozanne (with Rick Audas, Memorial University of Newfoundland and Ameline Yow, Office of the Auditor General)

Carousel and Conveyor Belt: The Migration of Doctors in New Zealand

This study aims to explore the migration patterns of foreign- and locally-trained doctors in New Zealand and analyse factors that contribute to their mobility. The success of policies that encourage international migration of health workers, in particular medical doctors, in order to fill-in identified gaps in health care provision does not depend simply on the numbers coming in but more on their retention. A systematic and thorough analysis of the migration patterns of these foreign-trained doctors and their propensity to stay in the host country vis-à-vis locally-trained doctors is therefore imperative. Results of the analysis can provide valuable information that could help in the development of strategies that should not only facilitate recruitment, but more importantly retention of doctors for a more sustainable solution to New Zealand’s and other countries that face similar health worker shortage problems.

Arlene Garces-Ozanne (with Murat Genc)

Sleepless in Christchurch: An analysis of the social and economic vulnerability of migrant communities in the wake of the Canterbury earthquakes

This study explores the social and economic vulnerability of different migrant communities in Christchurch, after the Canterbury earthquakes in 2010. The demographic characteristics of migrants vary from the natives, and also across ethnicities. We hypothesise that differences in these demographic characteristics affect how migrants cope with natural disasters, like the Canterbury earthquakes. We also aim to characterise vulnerable migrants and empirically test whether there is a significant difference between how safe or vulnerable migrants from different countries feel. We also examine what specific factors contribute to this difference. Determining the extent of vulnerability of migrants could be very useful in developing plans for disaster mitigation and preparedness.

Arlene Garces-Ozanne (with Maria Varua, University of Western Sydney)

Short-run Macroeconomic Determinants and Impact on the Philippine Economy of Remittances

This paper examines the macroeconomic determinants of remittance flows to the Philippines over the period January 1989 to March 2010, including other potential macroeconomic determinants of remittances like natural disasters and the political situation in the remittance receiving country that other studies have not previously included in the analysis. This paper also examines carefully the time series properties of the relevant variables as well as the short-run and long-run relationships among the variables of interest. We also estimate an error correction model (ECM) with time-varying parameters (TVP) to allow for the probability that some coefficients may be time-varying.

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Trent Smith

THE ECONOMICS OF INFORMATION, DEEP CAPTURE, AND THE OBESITY DEBATE (with ATTILA TASNÁDI, Corvinus University of Budapest)

The economic theory of regulatory capture predicts that industry groups will attempt to influence their regulators (for example, by lobbying for rules that exclude competition). It has been suggested that the same logic applies to any powerful institution with the ability to affect industry profits. When the aim of industry is to alter the public’s perception of its product (for example, by disseminating favourable messages to the news media or via an advertising campaign, or by funding industry-friendly scientific research), the end result has been dubbed deep capture. We develop a formal model of deep capture, in which consumers have imperfect information about product quality, and a dominant producer is able to increase his profits by altering the parameters of the consumer’s search problem. We demonstrate the empirical relevance of the phenomenon with a
discussion of the food industry response to the obesity epidemic.

Waiting for the invisible hand: Novel products and the role of information in the modern market for food (with Hayley H. Chouinard, and Philip R. Wandschneider, Washington State University)

This paper places the modern spread of diet-related chronic disease in the United States within the context of more than a century of innovation in food processing technology, discovery in nutrition science, and corrective policy measures aimed at improving public health. We ask whether the current state of affairs represents a market failure, and—if so—what might be done about it. We argue that while today’s industrial food system has its advantages, the asymmetric information problems inherent to this system have resulted in a ‘‘lemons-style’’ breakdown in the market for processed foods. The appropriate policy response to such situations (namely, verifiable quality standards) is well known, but such policies are likely (in the short run) to reduce profits for existing large industrial producers of food. In light of the food industry’s long history of success at regulatory capture, we propose the formation of a new independent food standards agency devoted to protecting the interests of the American consumer.

The U.S. Obesity Epidemic: New Evidence from the Economic Security Index (With Steven Stillman, and Stuart Craig (Yale University)

A growing body of research supports the \economic insecurity" theory of obesity, which posits that uncertainty with respect to one's material well-being may be an important root cause of the modern obesity epidemic.
This literature has been limited in the past by a lack of reliable measures of economic insecurity. In this paper we use the newly developed Economic Security Index to explain changes in U.S. adult obesity rates as measured
by the National Health and Nutrition Examination Surveys (NHANES) from 1988{2010, a period capturing much of the recent rapid rise in obesity. We find a robust positive and statistically significant relationship between
obesity and economic insecurity that holds for nearly every age, gender, and race/ethnicity group in our data, both in cross-section and over time.

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Paul Thorsnes (with Robert Alexander, University of the Sunshine Coast)


Housing market effects of exogenous urban amenities

We take advantage of an unusual house-sales data set to estimate the short-run effects on sale prices and long-run effects on house and neighbourhood characteristics of local variation in natural and historical amenities.

Paul Thorsnes (with Rob Lawson and John Williams, University of Otago Department of Marketing)

Residential response to time-of-use electricity pricing

We analyse survey and electricity usage data from a sample of Auckland households who participated in a one-year experiment with static daily peak/off-peak electricity pricing.

Paul Thorsnes (with Rob Lawson, University of Otago Marketing, Gerry Carrington, University of Otago Physics, Janet Stephenson, University of Otago Centre for Sustainable Agriculture, Food and Environment, and Barry Barton, University of Waikato Law)

Energy cultures: barriers to household adoption of energy efficient technologies and practices

With funding from the Foundation for Research, Science and Technology we take an inter-disciplinary approach to gain insight into householder decision-making with respect to adoption of energy efficient space and water heating technologies and practices.

Paul Thorsnes (with Colin Smithies, Tim Bishop and Ben Wells)

Combining market with survey data to estimate willingness to pay for heating-efficiency improvements

With funding from a University of Otago research grant we measured heating efficiency and improvements in a sample of houses that sold in 2005. The householders completed a choice modelling exercise to provide data for estimation of demand parameters.

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Tarja Viitanen

Is marital contract really just risk masquerading as promise: An examination of unexpected policy consequences of US policy reforms.

Marriage is a union between spouses who are given by law specific rights and duties resulting from that relationship. The divorce revolution (that is the shift from mutual consent divorce laws to no-fault including unilateral divorce laws) from the 1960s onwards has changed the enforcement of these agreements between the spouses. Brinig and Crafton (1994, p. 872) hypothesize that as a result of easier divorce there are "fewer marriages ex ante, fewer children (born later, after a longer trial period), more investment in individual careers rather than in the marriage, more divorces, and, ex post, more breaches by spouses in positions to behave opportunistically." This paper sheds light of these hypotheses using the General Social Survey from 1973-2012. Empirical evidence shows significant effects on both female labor market behavior and fertility behavior. The effect appears to be permanent and goes some ways to explain the great gender convergence of the last century.

Tarja Viitanen (with Arnaud Chevalier, Royal Holloway University of London)

In school we trust: the relationship between education and interpersonal trust in the US.

This paper examines the causal impact of education on interpersonal trust using the General Social Survey from 1972-2010 for the US. The causal effect is identified using variations in the school leaving age and child labor laws by state and over time.

Tarja Viitanen (with Arnaud Chevalier, Royal Holloway University of London)

Education, trust and terrorism attacks: Evidence from Oklahoma bombings and 9/11.

Education has a positive effect on interpersonal trust. To understand the mechanism behind this relationship we assess the heterogeneity by education level in the reaction to a shock on the trust level. We rely on two exogenous traumatic events; the Oklahoma bombing and 9/11 events. Any change in the education gradient in trust after these events would be evidence that education has a causal effect on trust. Terrorism acts creates an information shock to interpersonal trust which results in individuals re-optimising their trust decisions. The overall effect is a priori unclear. It may reduce the perception that all groups (especially out-groups) can be trusted. Alternatively, and especially in the areas directly affected, it may reinforce a sense of community and increase trust in the in-group. If education has a causal effect on trust, then the re-optimisation following the information shock will alter the education gradient in trust. If education makes individuals more resilient to shock or allow them to develop faster more differentiated views (more forgiving), then the education gap in trust will open after a terrorist act. If education mostly affects the composition of the groups that individuals interact with, then a terrorist attack may reduce the trust gap, as it becomes salient for all that not individuals can be trusted.

Tarja Viitanen

School shootings and confidence in school and the local community.

This paper examines the impact of school shooting across the US from the early 70’s until 2010 on the confidence in the school system and the local community. The individual-level data is collected at county level.

Tarja Viitanen (with Dan Farhat, University of Otago and Corey Allan, Motu)

Death penalty and its effect on the justice system

This paper investigates the impact of the legislative status of death penalty on confidence in the legal system. The analysis is conducted using the GSS data for the US from 1972-2010. Initial findings indicate large effects with the effect varying by the type of execution allowed.

Tarja Viitanen (with Dan Farhat, University of Otago)

Health related internet searches and confidence in medicine

This paper examines the effect of “self-diagnosing” illnesses using internet searches on confidence in medicine using micro level survey data with Google search data. The causal effect is identified using variations in the broadband provision and price by state and over time for the US.

Tarja Viitanen

Public policy and eldercare in Europe

This paper demonstrates that increasing government expenditure on formal residential and home-help for the elderly can significantly increase the labour force participation rates of women across Europe by relieving their informal care burden. Allowing for country fixed-effects and country-specific trends and correcting for attrition, the estimates - based on the European Community Household Panel - imply that a 1000 Euro increase in the government expenditure on formal residential care and home-help services for the elderly decreases the probability of informal care-giving outside of the caregiver’s household by 6 percentage points. Formal care substitutes for informal care that is undertaken outside of the carer’s own household, but does not substitute for intergenerational household formation. A simulation exercise shows that an increase in government formal care expenditure is a cost-effective way of increasing the labour force participation rates.

Tarja Viitanen (with Libertad Gonzalez, Universitat Pompeu fabra)

Long-term effects of legalizing divorce on children

This paper estimates the effect of divorce legalization on the long-term well-being of children, by exploiting the different timing of divorce legalization across Europe. We compare the adult outcomes of cohorts raised when divorce was banned with those of cohorts raised after divorce was legalized in the same country. We also have “control” countries where all cohorts were exposed (or not exposed) to legal divorce as children. We find that women who grew up under legal divorce have lower earnings and income and worse health as adults compared with women who grew up under illegal divorce. These negative effects are not found for men.

Tarja Viitanen

Partial versus general equilibrium effects of a voucher program

This paper uses a unique setup to compare the partial and the general equilibrium effects of a voucher program. The voucher was initially adopted as an experiment, provided to be used towards the payment for private childcare, in an economy with a universal, low-cost public care option. After three years, the private care voucher was adopted nationally. In this paper, the initial experiment provides the usual program evaluation method to analyze the partial equilibrium effect of the voucher on labor supply and characteristics of the childcare market. The general equilibrium effect, on the other hand, is analyzed as the private care voucher was adopted in the rest of the country.

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Dennis Wesselbaum (with Santanu Chatterjee (University of Georgia) and Olaf Posch (University of Hamburg)

Delays in Public Goods 

The provision of public infrastructure is often characterized by unexpected delays in implementation and escalation of costs, both in developed and developing countries.
In this paper, we analyse the consequences of time and cost overruns associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that these delays generate too much consumption and too little private investment relative to the first-best optimum. From a social planner’s perspective, however, the infrequent arrival of public capital requires a reallocation of resources away from consumption towards private investment in order to maintain an optimal flow of output. We also show that the presence of unanticipated delays in the provision of public capital not only lowers equilibrium growth, but also leads to a diverging growth path relative to that implied by the canonical model without delays. This suggests that delays in public capital provision may be a determinant of cross-country differences in income and economic growth.

Dennis Wesselbaum (with Marc-Andre Luik (Helmut Schmidt University Hamburg)

Central Bank Communication and Social Media #FED 

Central bank communication has changed dramatically over the last decades. This paper develops a new approach to identify and quantify the effects of central bank communication on asset prices and the real economy. We use Twitter data to identify monetary policy announcements.
Using tweets by the Federal Reserve Board we show that announcements significantly affect asset prices: they flattened the yield curve over the time span from 2012 to 2016. We then estimate a mixed-frequency VAR to identify real effects of central bank communication. We find that the FED’s communication had the desired real effects: higher output and inflation and lower unemployment.

Dennis Wesselbaum

Jobless Recoveries: The Interaction between Financial and Search Frictions

This paper establishes a causal link between labour market frictions and financial market frictions. We present empirical evidence about the relation between search and financial frictions. We argue that this link, being negative from 2007 to 2009, had large effects on labour market outcomes and helps to explain the jobless recovery. Then, we build a stylized DSGE model that features this channel. Simulation exercises show that the model with this channel generates a strong internal propagation mechanism, replicates stylized labour market effects of the Great Recession, and, most importantly, creates a jobless recovery.

Dennis Wesselbaum (with Alexander Falter (Bundesbank) and Marc-Andre Luik (Helmut Schmidt University Hamburg)

Bubbles, Systemic Risk, and Macroprudential Policy 

The financial crisis has shown that non-fundamental deviations of asset prices, i.e. bubbles, are able to create long-lasting adverse effects towards the global, real economy. To counter the recessionary pressures and to ensure a fast recovery, policy makers used a wide range of fiscal and monetary policy measures. A consensus emerged that this ex-post "cleaning" policy is only second-best compared with macroprudential policies, i.e. "leaning". Those policies are aimed at ensuring financial stability, reducing the volatility of the credit cycle, and limiting macroeconomic costs. In this paper, we build and estimate a DSGE model for the U.S. economy with systemic risk allowing for asset and house price bubbles. Within this framework we study the effects of various macroprudential tools.

Dennis Wesselbaum

Happiness over the Financial Crisis

This paper adds to the literature on the macroeconomic driving forces of happiness. Using data for 106 countries over the financial crisis we estimate a dynamic panel data model. We find that there is no evidence in support of the Easterlin Paradox. Further, individuals have a stronger aversion against unemployment than against inflation. We perform robustness checks including cultural differences and additional driving factors such as gender inequality and macroeconomic policies.
Finally, we identify happiness shocks in a Panel VAR and show that happiness creates business cycles. Interestingly, happiness shocks increase GDP on impact but decrease it after one year.

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