current projects
Working papers: [T]=Theory,
[E]=Empirical[E] Banks as Shock Absorbers: Evidence from firms exposed to climate change, 2019, with S. Baumgartner, T. Schober and R. Winter-Ebmer
We analyze the effect of risk on small-firm employment. The analysis is based on a sample of small, family-owned firms exposed to weather risk as a risk of demand shocks. The risk varies over time due to climate change, and it affects the productivity of the firms' employees. By using highly granular data, we can cleanly identify the baseline effect of the risk on employment, as well as modulating effects. We find that the risk causes a stronger reduction in the firms' employment when local banks lack equity capital. Our results are clean evidence that detrimental effects of risk are strongly amplified by financial frictions.
[E/T] The
stability of dividends and wages: Effects of competitor
inflexibility, 2018, with D. Rettl and J. Zechner.
We analyze how risk sharing between a firm's employees and
owners depends on its competitors' response to industry-wide
shocks. Focusing on the electricity industry, we obtain a
sample of firms with exposure to similar industry risks but
different production technologies. We document that firms
are more exposed to industry shocks, when their competitors
use lower-cost production technologies. 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.
[T] Iterated expectations under rank-dependent
utility and model consistency, 2015, with M. L. Vierø.
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 Cumulative
Prospect Theory (CPT) when a decision maker has to choose
between prospects that belong to a comonotonic class. Our
conditions characterize the compatibility of a prominent
alternative to expected utility with valuation methods that
are commonly used in applied economics and finance, e.g. in
binomial option pricing. The conditions can be viewed as an
impossibility result.