Why Economics?

Why Economics?

What is the best way to alleviate climate change? How to decide how many mobile phone operators to have? How to best assist immigrants in settling in the host country? What are the pros and cons of expanding the use of private firms in the provision of health services? Should compulsory schooling be increased to 18 years? How do punitive trade barriers affect the trade in goods that are not directly affected by the barriers? Is carbon leakage – firms shifting production to countries with less onerous environmental regulations – a real issue for developed countries? Are women/immigrants/other minorities discriminated against in the labor market? Should we ease the regulations affecting the introduction of new pharmaceuticals?

Notwithstanding the long tradition of dealing with issues that the wider public usually associates with economics – unemployment, economic growth, inflation and so on – the above questions give a more representative picture of what modern economics is about.

Economics provides on the one hand a way of looking at and analyzing the world, allowing economists to either zoom in on an individual question, or to address the big picture. At the heart of economics is the modeling of individual decision-makers in a way that allows one to analyze how different parties benefit from a given way of organizing things, and how the society as a whole comes out. On the other hand, modern economics has developed an impressive and ever deepening toolbox to utilize ingenious approaches and data to provide answers to both causal and what-if type questions.

If you are interested in how the society functions, no matter the precise perspective you have, economics provides excellent tools to improve your ability to analyze what is happening, what is important and what is not, and how to improve things.


Helsinki GSE and society

Helsinki GSE aims to cooperate with different actors to facilitate the use of economics in improving society. Such cooperation builds on the expertise of GSE faculty, and at its best, provides the partners of GSE with important insights and improves the teaching and research conducted at the GSE. Below you can find case examples of this type of cooperation.

Finland received a large influx of refugees in 2015. Among many other things, this lead to worries about how refugees should be trained so that they could settle and become active participants in the Finnish society. Helsinki GSE researchers are engaged in designing and implementing a randomized controlled trial that allows the government to compare the different ways in which immigrants receive training. Given that the global refugee flows are much larger than the Finnish ones, these experiments have high academic and policy relevance beyond Finnish borders.

The Finnish Social Insurance Institution (Kela) purchases many types of health and social services, spending large amounts of public money in the process. Kela has been worried about the increased costs of these services. Helsinki GSE researchers have been involved in redesigning Kela’s procurement procedures, leveraging their expertise in procurement and competition. In cases such as this, it is important to understand e.g. what is the product that is being procured, how it is produced by the firms, how customers choose between providers, and how all these affect the best way of procuring the services.

The city of Helsinki has used a variety of methods to sell plots of land to developers. Helsinki GSE researchers are helping the city of Helsinki better understand how different procedures have different consequences, and how to improve the process from the city’s point of view.

Mobile phone operators need spectrum to operate, and governments therefore need to decide who gets how much and which spectrum. The method of choice in many countries is to organize an auction. A number of years ago the Finnish spectrum auction failed due to problems in its design. Helsinki GSE researchers have helped the Finnish government improve the auction format. Key ingredients in a successful auction design are an understanding of what the objectives of the seller are (e.g. raising as much money as possible, or maximizing the level of competition or investments), what the bidders know and how the bidders will behave depending on what type of an auction is chosen.

Across the world, universities rely on public funding for large parts of their activities. How exactly governments fund universities will affect what universities do and how well they operate. Helsinki GSE researchers cooperate with the Ministry of Education and Culture to analyze the current funding system and to design a new one. Economists can be helpful in understanding how a given funding system affects the incentives of the universities, e.g., whether they become more or less interested in providing further education to individuals who are already working.

Various Finnish governments have tried to reform the social and health care sector. Many believe that the private sector should be harnessed to bring efficiency and variety. Given that health services are a textbook economics example of a product where markets easily fail, it is not without consequence how private firms are compensated for their services. Helsinki GSE researchers have worked with the Ministry of Social Affairs and Health and provided expert testimony to various Parliamentary Committees on the costs and benefits of different ways of organizing the social and health care sector. Economists can contribute by utilizing their ability to analyze what-if scenarios: how would competition work and how would customers choose under different compensation schemes when the product is hard for customers to evaluate both before, during and after having received the service, and when they do not pay the full cost of what they buy.