Columbia Business School Research

Many state and local governments incentivize new business creation. I analyze local growth policy in a setting where firm entry and expansion choices exhibit local complementarities, creating dynamic misallocation at the aggregate level. Optimal entry subsidies would speed the transition of Rust-belt workers to the South and Mountain West by an extra 10 million people by 2035, raising real incomes by 4%. Actual subsidies substantially worsen misallocation, lowering welfare by 3%, 6 times the size of the subsidies themselves.

We propose one route to a more inclusive society. Our context is the prevailing one of high wealth inequality where stockholders alone supply the stochastic discount factor governing the allocation of capital. A large and pervasive pecuniary externality is thus imposed on non-stockholder workers, something we view as antithetical to the notion of an inclusive society.

Heated academic debates between proponents and opponents of traditional economic growth under capitalism might make for good television, but they offer little in the way of solutions. Climate change demands that we achieve both growth and degrowth, depending on the activity and economic sector in question.

An increase in the novelty of news predicts negative stock market returns and negative macroeconomic outcomes over the next year. We quantify news novelty – changes in the distribution of news text – through an entropy measure, calculated using a recurrent neural network applied to a large news corpus. Entropy is a better out-of-sample predictor of market returns than a collection of standard measures. Cross-sectional entropy exposure carries a negative risk premium, suggesting that assets that positively covary with entropy hedge the aggregate risk associated with shifting news language.

Routines shape many aspects of day-to-day consumption. While prior work has established the importance of habits in consumer behavior, little work has been done to understand the implications of routines — which we define as repeated behaviors with recurring, temporal structures — for customer management. One reason for this dearth is the difficulty of measuring routines from transaction data, particularly when routines vary substantially across customers. We propose a new approach for doing so, which we apply in the context of ridesharing.

As long as coal plants are still operating, it is a good idea to require them capture their carbon dioxide emissions. But those designing policies to hasten such practices must tread carefully, lest they unwittingly extend the life of dirtier energy sources.

The market power of data sellers is a topic of concern for policymakers. While most data sellers have a monopoly for their data set, they also cannot commit not to sell data to other customers. We find that limited commitment, combined with the fact that data’s strategic value declines in the number of users, makes data sellers behave more competitively. Monopolist data sellers do not have much monopoly power, but data subscription sellers do. While subscriptions allow firms to credibly commit to restrict their supply of data, they also incentivize firms to invest in higher-quality data.

This study presents moral cost as a novel behavioral constraint on firm resource adjustment, specifically layoff decisions that can cause severe harm to employees. Revising the prevailing negative view of managers as purely self-interested, we propose that managers care about their employees and incur moral cost from layoffs. We leverage expansions in unemployment insurance as a quasi-natural experiment that reduces economic hardship for laid-off workers and, in turn, the moral cost of layoffs to managers. We find that these expansions license larger layoffs.

We develop a financial-economic model for carbon pricing with an explicit representation of decision making under risk and uncertainty that is consistent with the Intergovernmental Panel on Climate Change’s sixth assessment report. We show that risk associated with high damages in the long term leads to stringent mitigation of carbon dioxide emissions in the near term, and find that this approach provides economic support for stringent warming targets across a variety of specifications.

NEW YORK – Climate change is no longer a future problem. It is here, and the effects are all around. Worse, today’s extreme weather events are just a preview of the pain that awaits humanity in the coming decades, almost regardless of how fast we manage to decarbonize the economy this year or next.

Problem definition: Motivated by ride-hailing platforms such as Uber, Lyft and Didi, we study the problem of matching riders with self-interested drivers over a spatial network.

Although there have been numerous studies on voluntary departure—i.e., quit behavior—the way race influences voluntary departure is not yet settled. Some studies suggest racial minorities are more apt to voluntarily depart than non-minority employees due to discrimination in the workplace. Other studies suggest racial minorities are more apt to stay due to discrimination in the labor market.

Drawing on two decades of extensive deal data from the venture capital market, we show that one in three deals involves an investor and founder from the same alma mater. Notably, venture capitalists (VCs) are not only more likely to invest in founders from their alma mater, but also place larger bets on these firms. Tests exploiting VC partner turnover suggest a causal link between education connections and funding likelihood.

This study uses Form D filings to uncover new facts about brokered startup offerings, where 60% of brokers are registered with FINRA, while 40% are unregistered, often referred to as finders. Issuers, particularly those with fewer sophisticated investors and a higher number of brokers in their zip code, are more likely to engage with brokers. Venture Capitalists (VCs) rarely participate in brokered offerings, but non-accredited investors tend to be more involved in offerings handled by finders.

Do corporate control transactions discipline the labor force? Consistent with synergies, we find that new disclosures of employee misconduct in the investment advisory industry drop by between 28 and 37% following mergers. Both targets and acquirers have better premerger misconduct records than the industry’s average firm and, within the subsample of merging firms, there is assortative matching on misconduct. Merger events facilitate further reductions in misconduct through separations of target firm employees with high misconduct.

In the landscape of low carbon sources of energy, nuclear power stands out as an option that has generated increasing attention and capital investment. Since 2001, nuclear energy production has been in decline, though Clean Core Thorium Energy, led by Mehul Shah, is one of the companies that is bringing nuclear back to the forefront. Founded in 2017, Clean Core is a nascent player in an industry that has a poor reputation among investors.

Voestalpine, the Austria-based global leading steel manufacturing division of High Performance Metals, has made a bold commitment. It would achieve climate neutrality by 2050, with chief sustainability officer Philipp Horner leading the charge. Horner and his strategy team must review its entire manufacturing process to find opportunities for decarbonization, including learning about completely new methods for production and reevaluating its existing blast furnace technology.

Strategies for coping with businesses that face the declining demand of late life-cycle products are
revisited in light of the enhanced competitive capabilities made possible by access to the World
Wide Web and connectivity to the Internet. Presumably endgame competitors may draw upon a
wider variety of implementation options on both the demand and supply sides when serving the
highly-connected markets reached via Internet access. Results are posited to be mixed since supply-

The plan to charge drivers to enter Manhattan south of 60th Street, which last month moved closer to federal approval, will deliver two notable gifts to New York and the region when it begins, perhaps as soon as next April.

It’s days like today that I wished I had former Alaska Gov. Sarah Palin’s superpower and could “love that smell of the emissions,” or at least was immune to them. In reality, of course, nobody is. But reading statistics about millions a year dying from air pollution caused by the burning of fossil fuels is one thing.

To think that technology will save us from climate change is to invite riskier behavior, or moral hazard. Whether a climate technology creates new problems has little to do with the solution, and everything to do with us.

I propose and test a simple model of the equity premium implied by the prices of options on the stock market. The model assumes that markets for the stock index and its options are frictionless and complete to extract as much information as possible from their prices. Its forecasts of the equity premium are more accurate than those in prior work, especially when arbitrage costs are low. It offers new economic insights into why the premium varies, including why it increased for many years after the 2008 crisis.

This study examines the persistent funding gap for Black founders in venture capital and investigates the drivers behind this disparity. Employing a novel race-disambiguation algorithm, we find that only 3.47% of Black founders are in the pipeline. Our analysis provides partial support for the supply-side argument, suggesting that broader societal factors play a significant role.

Emissions abatement alone cannot address the consequences of global warming for weather disasters. We model how society adapts to manage disaster risks to capital stock. Optimal adaptation — a mix of firm-level efforts and public spending — varies as society learns about the adverse consequences of global warming for disaster arrivals. Taxes on capital are needed alongside those on carbon to achieve the first best.

We consider a New Keynesian model with strategic monetary and fiscal interactions. The fiscal authority maximizes social welfare. Monetary policy is delegated to a central bank with an anti-inflation bias that suffers from a lack of commitment. The impact of central bank hawkishness on debt issuance is non-monotonic because increased hawkishness reduces the benefit from fiscal stimulus while simultaneously increasing real debt capacity.

Black- and Hispanic-owned funds control a very modest share of assets in the private capital industry. We find that the sensitivity of follow-on fundraising to fund performance is greater for minority-owned groups, particularly for underperforming groups. We find little support for a number of explanations for these patterns: that minority fund valuations are overstated, that minority funds encounter difficulties in hiring personnel, or that deploying capital is more difficult for these funds.

We study a regulation in Chile that mandates warning labels on products whose sugar or caloric concentration exceeds certain thresholds.We show that consumers substitute from labeled to unlabeled products—a pattern mostly driven by  products that consumers mistakenly believe to be healthy. On the supply side, we find substantial reformulation of products and bunching at the thresholds.

Now that the only thing as certain as death and taxes is climate change, it is perhaps no surprise that the Internal Revenue Service is critical to emissions policy.

This paper studies the implications of central bank credibility for long-run inflation and inflation dynamics. We introduce central bank lack of commitment into a standard non-linear New Keynesian economy with sticky-price monopolistically competitive firms.Inflation is driven by the interaction of lack of commitment and the economic environment. We show that long-run inflation increases following an unanticipated permanent increase in the labor wedge or decrease in the elasticity of substitution across varieties. In the transition, inflation overshoots and then gradually declines.

We propose a political economy mechanism that explains the presence of fiscal regimes punctuated by crisis periods. Our model focuses on the interaction between successive deficit-biased governments subject to i.i.d. fiscal shocks. We show that the economy transitions between a fiscally responsible regime and a fiscally irresponsible regime, with transitions occurring during crises when fiscal needs are large. Under fiscal responsibility, governments limit their spending to avoid transitioning to fiscal irresponsibility.

How should an investor value financial data? The answer is complicated because it depends on the characteristics of all investors. We develop a sufficient statistics approach that uses equilibrium asset return moments to summarize all relevant information about others’ characteristics. It can value data that is public or  private, about one or many assets, relevant for dividends or for sentiment. While different data types, of course, have different valuations, heterogeneous investors also value the same data very differently, which suggests a low price elasticity for data demand.

The Covid-19 pandemic has accelerated the trend of many colleges moving to testoptional, and in some cases test-blind, admissions policies. A frequent claim is that by not seeing standardized test scores, a college is able to admit a student body that it prefers, such as one with more diversity. But how can observing less information allow a college to improve its decisions? We argue that test-optional policies may be driven by social pressure on colleges’ admission decisions.

We propose a theory of banking in which banks cannot perfectly control deposit flows. Facing uninsurable loan and deposit shocks, banks dynamically manage lending, wholesale funding, deposits, and equity. Deposits create value by lowering funding costs. However, when the bank is undercapitalized and at risk of breaching leverage requirements, the marginal value of deposits can turn negative as deposit inflows, by raising leverage, increase the likelihood of costly equity issuance. Banks’ inability to fully control leverage distinguishes them from non-depository intermediaries.

The US Inflation Reduction Act is a landmark legislative package that should be welcomed around the world, despite its putatively protectionist features. Owing to the positive learning-by-doing spillovers that follow from green subsidies, Europe and the rest of the world ultimately will benefit, too.

The increasing importance and proliferation of text data provide a unique opportunity and novel lens to study human communication across a myriad of business and marketing applications. For example, consumers compare and review products online, individuals interact with their voice assistants to search, shop, and express their needs, investors seek to extract signals from firms’ press releases to improve their investment decisions, and firms analyze sales call transcripts to increase customer satisfaction and conversions.

Building infrastructure is hard; building a trillion dollars’ worth of infrastructure within a decade, while jump-starting U.S. manufacturing and protecting fragile ecosystems, is harder still. But if President Biden’s climate finance windfall is to position the United States to lead on clean-energy jobs, trade and innovation, that building needs to start now.

Private equity was a bright spot in institutional investors’ portfolios last year. The asset class held up much better than public stocks, which were whipsawed by rising rates. Read the full article at the Financial Times.

Attempting to shield Earth from the sun’s rays in what’s often described as a last-ditch effort to cool average global temperatures is controversial for good reason. It might work and do a lot of good, but there are ample risks. Most importantly, it is no replacement for cutting greenhouse gases. Researchers who study the approach most closely are the first to say just that. Using solar geoengineering as the latest excuse not to slash carbon and other pollution would be a mistake. But research we must.

How can we measure the extent to which data-intensive firms are using their market power? Economists typically look to markups as evidence of market power. Using a simple model with firms that price risk in their capital allocation and production decisions, we highlight the competing forces that make markups an unreliable measure of data-derived market power. Instead, we show how markups measured at different levels of aggregation reflect data and distinguish data from other intangible investments.

Rules are being drafted to guide compliance with a 2019 New York City law that requires most of about 50,000 buildings, many over 25,000 square feet, to cut their greenhouse gas emissions by 40 percent by the end of this decade and to achieve net-zero emissions by 2050.

We develop a novel technique to extract credit-relevant information from the text of quarterly earnings calls. This information is not spanned by fundamental or market variables and forecasts future credit spread changes. One reason for such forecastability is that our text-based measure predicts future credit spread risk and firm profitability. More firm- and call-level complexity increase the forecasting power of our measure for spread changes. Out-of-sample portfolio tests show the information in our measure is valuable for investors.