Essays in Applied Microeconomics

Economic prosperity and growth has been central issues for economists and many others for centuries. While being significant in many aspects and generally perceived as a valid indicator of a country's economic performance, a measure such as the gross domestic product (GDP) does not fully reflect the welfare (or wellbeing) of the individuals living in the country. Early measures of welfare relied solely on indicators of income or wealth, but welfare has long been considered a multidimensional phenomenon that is not adequately summarized by a single monetary variable.

Chapters 1 and 2 of this dissertation focus on making multidimensional population welfare comparisons by using first order (stochastic) dominance (FOD). FOD requires no weighting of the different dimensions, and it differs from dominance concepts of the Atkinson and Bourguignon (1982) type by the absence of assumptions about the substitution/complimentarity between dimensions. Chapter 1 studies the application of FOD to facilitate comparisons of welfare between populations. After reviewing the one-dimensional and a multidimensional conditions for FOD, the chapter describes how to check for FOD both theoretically using the most intuitive condition, and in practice using linear programming. Some limitations of FOD are then discussed followed by a bootstrapping procedure as well as the Copeland (1951) method, which helps mitigate some of the empirical limitations. Finally, a faster checking algorithm than linear programming and an alternative dominance criterion are discussed.

Chapter 2 applies the FOD concept on EU-SILC data to make multidimensional welfare comparisons between European member states and within European member states over time. We check for FOD using an alternative condition than the one previously applied in the literature. This involves identifying all lower comprehensive sets (LCSs) and comparing (for each such set) the total population mass in each of the two populations. A bootstrapping procedure is applied as an empirical test of the probability of observing FOD under re-sampling. In addition, we apply the Copeland (1951) method, which is a measure of the tendency to outperform other populations, as an overall relative indicator of population welfare.

We find that the countries most often dominated are southern and eastern European member states, and the dominant countries are mostly northern and western European member states. However, for most country comparisons, there is no dominance relationship. Moreover, only a few member states have experienced a temporal dominance improvement in welfare, while no member states have experienced a temporal dominance deterioration during the financial crisis.

Chapter 3 contributes to the literature on how to increase the number of living donations of organs, cells and tissues in an ethically acceptable way. This is analyzed by applying microeconomic theory and political justice on issues related to disincentives for donors. A market model where monetary incentives are used to attract donors is rejected due to international rules and guidelines prohobiting such incentives. We propose a model where donors receive reimbursement for incurred monetary costs and non-monetary compensation for different forms of non-monetary losses related to the donation. It is argued that such a model would increase the number of donations by removing disincentives for donors and that it would be ethically acceptable and politically feasible. The reasons for this are explained using frameworks fra political philosophy.

Chapter 4 analyzes the causal effect of parental ressources on fertility and early life health outcomes.96 We identify the once-lagged one-year home value change in each year of the study (1995 through 2006) as a conditionally exogenous measure of parental resources from housing wealth. We apply a simple fixed-effects model with a range of key fixed effects to analyze whether this has in fluenced the probability of giving birth. In particular, we control for potential sources of bias from municipalityby- year shocks and from age-at-purchase and year-of-purchase housing tenure effects. In addition, we examine the effect on birth outcomes, such as birth weight, and early life health outcomes, for example the number of days hospitalized in the first year of life.

We find a positive effect of home value increases on fertility that is consistent with the previous literature and the view of children as normal goods. A 100,000 DKK increase in home values in the prior year increases the likelihood of giving birth by 0.27 percentage points, or 2.32% relative to the mean. Heterogeneity results indicate that the effect is strongest for women between 25 and 39 years of age, firsttime mothers, and women in the middle of the income distribution, but we do not find heterogeneity across socioeconomic status using the woman's education. We find economically significant effects of home value changes on health at birth for low birth weight and premature birth. The cost of raising a child in Denmark is substantially lower than in most other countries due to, e.g., long parental leave, subsidized childcare, free healthcare, free schooling, and more. One might thus ex ante expect income effects to be smaller in Denmark than in, say, the US. The fact that this is not the case suggests that these policies are unable to mitigate wealth effects on fertility.