PhD Job Candidates 2016-2017

The Impact of Spatial Price Differences on Oil Sands Investments (Job Market Paper) - In this article, a two-factor real options model is developed to examine the impact spatial price differences have on the value of an oil sands project and the incentive to invest. Large, volatile price differences between locations can emerge when demand to ship exceeds capacity limits. This may have a significant impact on policy, production and investment in exporting regions. We assume the price difference between two locations follows a stationary process implying prices in different locations move together. The investment decision is formulated as a linear complementarity problem that is solved numerically using a fully implicit finite difference method. Results show the value of an oil sands project and the incentive to invest in a new project will increase when price differences decrease. Surprisingly, the standard deviation of the price difference has very little impact on project value or the incentive to invest.

Crude Oil Spatial Pricing Dynamics: A Cointegration Approach - This article examines the spatial pricing relationship between weekly crude oil spot prices using cointegration analysis that allows for multiple endogenously determined structural breaks. Particular focus is given to the relationship between land-locked North American crude oils (WTI and WCS) and international benchmarks with access to tidewater (Brent, Dubai Fateh, and Mexican Maya). The number of breaks is determined using a sequential testing procedure proposed by Kejriwal and Perron (2010) and the break dates are estimated using the Bai and Perron (2003) algorithm. Results indicate crude oil prices, for similar and different quality crude oils, are cointegrated with multiple structural breaks. It appears that constrained infrastructure caused from the rapid increase in unconventional crude oil production in North America caused the relationship between land-locked crude oils and tidewater crude oils to change over the sample period causing land-locked crude oils to be discounted relative to similar quality tidewater crude oils.

This thesis mainly investigates the impact of teams in the production process on firm and individual behaviour. It also includes a chapter that analyzes the impact of financial incentives of a promotion on individual behaviours towards overtime participation.

The first chapter looks at the impact of uncertainty about the types of teammates and about the production process on effort decisions of agents. The model involves solving a moral hazard problem with generation of agents that overlap. The economy contains two types of agents, pyramid organizational structures, (heterogeneous or homogeneous) combination of manager-worker teams, and promotion and retirement reward structure that affects incentives. When cost of effort is low, “bad luck” in the production process is low, and proportion of low efficiency types are high, then this reduces the incentives for individuals to free ride on the efforts of the team.

The second chapter looks at the impact of cost of effort and price of workers on a firm’s choice toward team composition when worker types differ in efficiency levels. The production technology the firm employs require a team of two workers. The analysis tackles the idea of team composition under two scenarios; when a firm can hire the team from a pool of applicants and when a firm must organize an existing workforce of employees. Under the first scenario, if costs of effort for workers and hiring costs are sufficiently low, hiring only high efficiency types is optimal (homogeneous). As both these costs increase, the firm uses its resources to incentivize one (more expensive) high efficiency type to exert effort and fill the other position with cheap, low efficiency, labour (heterogeneous). Instead, if there is an existing workforce, most often heterogeneous teams are selected.

The third chapter analyzes a specific incentive scheme of organizations and firms to induce effort, overtime participation, that is not directly related to an individual’s contract; namely promotions. By participating in overtime (exerting effort), an individual potentially increases his probability of a 1 promotion, which carries an expected increase in hourly wage. To find the causal effect of expected monetary incentives of a promotion on an individual’s overtime participation, the Arellano-Bond estimator is employed. The results indicate that there is a positive and significant impact of financial incentives from a promotion on overtime participation for low hourly wage individuals. An increase in the expected monetary incentives of a promotion increases the likelihood an individual works more than the minimum regular work hours.

This dissertation consists of three independent chapters. In the first chapter, a life cycle model of human capital accumulation through learning by doing with heterogeneity in productivity and age is constructed. The model is used to evaluate the impacts of social security reforms on the welfare of individuals; and the distribution of labour supply, consumption, and physical capital accumulation over the life cycle in the long run. In the reference economy, retirement is mandatory with a Pay-As-You-Go (PAYG) social security system. The following policy reforms are considered: (i) terminating the social security system with mandatory retirement, (ii) terminating the social security system with voluntary retirement, and (iii) introducing voluntary retirement with the social security. The results from the policy experiments show that even low skilled individuals prefer an economy without a social security system. Furthermore, the impacts of voluntary retirement on an individual’s decisions vary by age and productivity. In particular, shorter working life is in favor of low skilled individuals while high skilled ones choose to work longer. It also shows that an increase in the tax rate which is corresponds with higher pension benefits leads to a larger response of high skilled individuals and a decline in the working life of low skilled individuals. However, these results do not hold if human capital is assumed to be exogenous.

In the second chapter, a life-cycle model is employed to study the role of total factor productivity and investment specific technology shocks on business cycles and the behavior of individuals in a life-cycle model. The results show that the role of investment specific technology shocks as a driving source of fluctuations is limited and it is not in line with the literature. The results also show that the impacts of technology shocks on labour supply, consumption, and physical capital depend on an individual's age and the nature of shocks. In particular, individuals’ optimal decision is to increase their current consumption due to a positive TFP shock. Therefore, old individuals work more while young individuals borrow more physical capital. However, more accumulation of physical capital is optimal when a positive IST shock is introduced into the economy. This can be achieved by a reduction in consumption especially among retired individuals and a sharp increase in the labour supply of old workers. Consequently, the profile of relative labour supply volatility is affected differently by the shocks.

The third chapter studies the labour market outcomes of second generation immigrants compared to other natives (third generation) in Canada, with an emphasis on cognitive skills and education. By using survey data from the 2003 International Adult Literacy and Skills Survey, this chater shows that children of immigrants are more likely to obtain a university degree. Moreover, they obtain higher test scores in cognitive skills and thus higher earnings compared to children of non-immigrants in Canada. Educational attainment and literacy skills are found to be important sources of success in the labour market for second generation immigrants. The positive association between parental education and human capital of children suggests that in the long run, Canadian society could benefit from the immigration point system in which immigrants with higher level of human capital are selected.