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Current projects

Working papers: [T]=Theory, [E]=Empirical

[E] Banking on Snow: Bank Capital, Risk and Employment, 2022 (coming soon), with Simon Baumgartner, Thomas Schober and Rudolf Winter-Ebmer.

We show that the effect of labor productivity risk on small-firm employment depends on the equity capital of local banks. Our analysis is based on a truly quasi-experimental setting. We use highly granular data about a sample of small firms employing workers whose productivity depends on the weather. The data allow us to cleanly identify the causal  effect of labor productivity risk on the firms' employment. We find that an increase in the risk of transitory shocks reduces firms' willingness to commit to employing workers. This effect is stronger if local banks have less equity capital. It appears that, by impairing banks' supply of liquidity insurance, a lack of bank equity reduces firms' capacity to take labor productivity risk. Our evidence highlights that bank capitalization matters for economic adaptation to climate change by reducing the effects of increased weather variability on small-firm employment.

This project is also mentioned in an opinion piece I wrote to propose a green view of the prudential regulation of banks: Fridays for Equity

[T] Iterating Expectations under Rank-Dependent Expected Utility and Implications for Common Valuation Methods, 2021, with Marie-Louise Vierø.

This paper investigates the applicability of common valuation techniques in finance when the decision maker's preferences can be described by the RDU model. Under expected utility theory, compound lotteries can be valued by iterating expectations: the expected utility of a compound lottery is the expected value of a simple lottery over prizes that are certainty equivalents to follow-up lotteries. We derive necessary and sufficient conditions for a similar valuation technique in the framework of RDU when a consequentialist decision maker has to choose between prospects that belong to a comonotonic class.

Forthcoming, Canadian Journal of Economics.

[E/T] The stability of dividends and wages: Effects of competitor inflexibility, 2020, with Daniel Rettl and Josef Zechner.

We analyze how industry-wide risks are shared between firms' employees and their owners. Focusing on the electricity generation industry, we study firms which are subject to similar risks but use different production technologies. We document that firms are more exposed to industry shocks when their competitors use lower-cost production technologies, since this mitigates their response to negative demand shocks. This "competitor inflexibility" destabilizes payouts to equityholders, but there is no evidence that it compromises wage stability. Firms do not share systematic risk due to competitor inflexibility with their employees and set wages as if their shareholders' risk preferences were given.

For a theoretical analysis and further results, see the internet appendix.

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