CER-ETH Research Seminar, Fall Term 2022

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please contact Philippe Colo.

Speakers

Petr Sedlacek

Title: Customer acquisition and aggregate growth

Abstract: Customer acquisition has been shown to be crucial for firm entry, growth and exit – key forces at the heart of modern endogenous growth models. We incorporate customer acquisition into a novel endogenous growth model and show that accumulating customers increases firms’ incentives to conduct R&D and reallocates market activity towards high-growth firms (``gazelles’’). Estimating our model on firm-level micro-data suggests that customer acquisition accounts for more than 1/3 of aggregate growth. Moreover, we show that ignoring customer acquisition distorts our view of the efficacy of growth policies. Finally, we document support for key model predictions using firm-level micro-data.

Philippe Thalmann

Title: Innovative climate policy instruments

Abstract: The economists’ favourite climate policy instruments, the carbon tax and cap-and-trade, fall short of putting Switzerland on a path to net zero in 2050. Time to consider new instruments, in particular for aviation but also to ensure that nearly no more fossil energy is used in 2050. This presentation will propose such new instruments and hint at how they might work, with a view to triggering research on them.

Ralph Luetticke

Title: Financial Frictions: Macro vs Micro Volatility

Abstract: We introduce frictional financial intermediation into a HANK model. Households are subject to idiosyncratic and aggregate risk and smooth consumption through savings and consumer loans intermediated by banks. The banking friction introduces an endogenous countercyclical spread between the interest rate on savings and on loans. This interacts with incomplete markets because borrowers and savers face different intertemporal prices, and induces a time-varying mass point of high MPC households. Aggregate shocks through their impact on the spread give rise to consumption inequality. We show this mechanism to be empirically relevant. Ex-ante macro prudential regulation reduces welfare by reducing consumption smoothing.

Karl Schmedders

Title: Disagreement about Climate Change, Climate Risk Sharing, and the Pricing of Green and Brown Stocks

Abstract: This paper presents an asset-pricing model with heterogeneous beliefs about the impact of climate change on the economy. Investors disagree on the likelihood of climate disasters that would lead to large negative consumption shocks. The agents have identical Epstein--Zin preferences with a preference for the early resolution of risk. The model jointly explains several empirical results that have been established in the empirical finance literature. The model shows that investors require a positive climate-risk premium for holding ``brown'' assets, which are exposed to climate-change risk. It also explains why, in contrast, ``green'' stocks have strongly outperformed brown stocks during the past decade. While investors can protect themselves against news about climate change in financial markets, they cannot hedge against climate disasters.

Brian Hill

Title: Confidence in Beliefs : Rational Decision, Aggregation and Uncertainty Reporting

Abstract: Bayesianism provides a powerful benchmark for treating uncertainty, on topics ranging from rational belief and decision to learning, uncertainty reporting and belief aggregation. However, it is often argued to be unable to cope properly with severe uncertainty, of the sort ubiquitous in some areas of policy making. Here we present parts of an on-going project developing an adequate replacement notably as a guide for rational belief and decision making, but also in other domains where it serves as a benchmark.
A central insight in our approach is the relevance of the decision maker’s confidence in her beliefs. We set out a representation of belief states and an account of decision that incorporates confidence in beliefs, and show that it has strong normative credentials on the main fronts typically evoked concerning rational belief and decision. It fares particularly well, we argue, in comparison to other prominent non-Bayesian models in the literature. Time-permitting, we then discuss applications of the approach for rational belief aggregation, arguing that incorporating confidence can resolve some of the recently highlighted issues with standard Bayesian-based approaches, and for uncertainty reporting, notably at the science-policy interface.

Wolfram Schlenker

Title: On the incidence of a carbon tax and whether it reduces oil consumption

Abstract: We use field-level cost estimates of all oil and natural gas fields to highlight dynamic aspects of a global carbon tax. Some of the initial reduction in consumption will be offset through higher consumption later on. Only high-cost reserves will be priced out of the market, e.g., at 200 dollars per ton of CO2 cumulative emissions decrease by 4%. The tax incidence initially falls on consumers under a constant tax but eventually becomes negative as the lifetime of the resources is extended. An increasing tax over time reduces the initial incidence on consumers.

Zeno Enders

Title: Firm expectations and news: Micro vs. Macro

Abstract: How do expectations about the economy adjust to news? In this paper, we turn to firm expectations about their production and establish that the type of news matters—firm expectations overreact to micro news but underreact to macro news. We obtain these results based on a large survey of firm expectations. We define micro news as new information about firm-specific developments, while macro news are surprise innovations to an aggregate indicator. In violation of the full-information rational expectation hypothesis, both type of news predict forecast errors. But while micro news predict negative forecast errors, macro news predict positive forecast errors. We show that a general equilibrium model can rationalize the patters in the data once we assume that firms suffer from “island illusion”.

Andreas Lange

Title: Market structure, evolution and regulation with prosocially motivated firms

Abstract: Social enterprises serve stakeholder interests beyond pure shareholder value. We construct a rich model to understand how social enterprises affect the structure, evolution, and regulation of markets where externalities are a component of product quality, e.g., environmentally-friendly and socially-responsible products. We solve for equilibrium configurations and identify a unique role for social enterprises: they can discover latent consumer preferences and spur product innovation. We further show how regulations (i.e., standards or prices on externalities) impact product characteristics, both directly and indirectly, by altering incentives for product dfferentiation. Our work offers unique insights on social enterprises and their multifaceted market impacts.

Ola Vestad

Title: Labor supply and taxation: A reappraisal taking income effects into account

Abstract: In this report, we combine theory and empirical estimates for how labor earnings respond to changes in tax rates and unearned income. We use lottery winnings to obtain variation in unearned income and tax reforms to obtain variation in the net of tax rate. Combining this information with measures of extensive margin responses and the progressivity of the Norwegian income tax schedule, we are able to point identify uncompensated and compensated behavioral responses to income taxes and therefore to calculate efficiency losses and optimal income tax rates (for given welfare weights).