Contributions in Merlin

Using a unique data set of business loan applications to a single bank from individuals who are majority owners of small firms, we study how bank credit origination or denial affects individuals' income. The bank cutoff rule based on the applicants' credit score creates a sharp discontinuity in the decision to originate loans or not. We show that loan origination increases recipients' income five years onward by more than 10% compared to denied applicants. The effect is more pronounced in rural and low-income areas. Our results suggest an important role for banks` credit decisions on the distribution of income.

Model risk needs to be recognized and accounted for in addition to market risk. Uncertainty in risk measures estimates may lead to false security in financial markets. We argue that quantile type risk-measures are at least as good as expected shortfall. We demonstrate how a bank can choose among competing models for measuring market risk and account for model risk. Some BCBS capital requirements formula currently in effect leads to excessive capital buffers even on an unstressed basis. We highlight that the loss to society associated with the inefficient minimum capital requirements calculations is economically substantial over time.

Does neglecting the possibility that fossil fuel reserves become “stranded” result in a "carbon bubble", i.e., an overvaluation of fossil fuel firms? To address this question, we study whether banks price the climate policy risk. We hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms-along their climate policy exposure-to non-fossil fuel firms. We find that before 2015 banks did not price climate policy risk. After 2015, however, the risk is priced, especially for firms holding more fossil fuel reserves. We also provide some evidence that "green banks" charge marginally higher loan rates to fossil fuel firms.

Since the 1990s, research on publication outputs in business and economics has almost exclusively focused on journal articles. While earlier work has shown that journal articles and other publications were indeed complements in the 70s and 80s, we find that this is no longer the case when we include the most recent decades. Apparently, the notable shift in the scientific community's attention in the 90s on journal articles and the corresponding incentives towards publications in internationally highly ranked journals on average led researchers to focus one-sidedly on journal publications at the expense of other publication forms. To see whether the aggregate result also holds for individual researchers, we perform a cluster analysis and find four different types of individual researchers: "Journal Specialists", "Book-Based Publishers", a small group of "Highly Productive All-round Publishers" and a large group of what we call "Inconspicuous" researchers, with a very modest publication productivity in all forms. In addition, we find that researchers' age matters for their publication patterns: in our sample, more experienced researchers are less productive with respect to journal articles, but more productive with respect to other publication forms. This, however, is not the result of an individual career effect. Rather, it can be attributed to a cohort effect: among today's active researchers, the younger cohorts are more productive in journal articles than the older ones. Our explanation is as follows: the younger cohorts were still in their socialization and hiring phase and were more strongly affected by the newly introduced incentives towards international journal publications—and have thus reacted more strongly to the “regime change” resulting from the scientific community’s one-sided attention to publications in internationally highly ranked journals.

This paper summarizes results of a project that tries to examine how the revision of vocational training (apprenticeship) curricula affects the training behavior and investment decision of training companies. The project paid particular attention to IT-related changes in curricula and firms' investments in IT and new production technology. Unfortunately, based on the available dataset, the German Linked-Employer-Employee-Data (LIAB), the project was not able to produce conclusive evidence on the expected relationship. We find first support for a positive correlation between curricula changes and the probability to invest in IT for training firms but with the small number of cases (occupational curricula changes) and the limited number of adequate dependent variables we did not find significant effects for most single occupations. In the following, however, we provide some descriptive patterns that shed light on what we do know and what we do not know.

We study the intra-horizon value at risk (iVaR) in a general jump diffusion setup and propose a new model of asset returns called displaced mixed-exponential model, which can arbitrarily closely approximate finite-activity jump-diffusions and completely monotone Levy processes. We derive analytical results for the iVaR and disentangle the risk contribution of jumps from diffusion. Estimating the iVaR for several popular jump models using on S&P 100 option data, we find that option-implied estimates are much more responsive to market changes relative to their historical counterparts. Moreover, disentangling jumps from diffusion, jump account for about 90 percent of iVaR on average.

The goal of this article is to assess the optimal choices of a smallholder quinoa farmer in the Puno region of Peru, in terms of his decision if and when to undertake certain investments that are expected to increase quinoa yield and crop resistance to harsh weather conditions, such as frost. We focus on two irreversible options, namely quinoa variety management andWaruWaru. The former alternative considers the option of the farmer to switch from his business-as-usual quinoa variety to one that has different yield and frost resistance characteristics. The latter alternative refers to the implementation of an ancestral cultivation practice that is estimated to offer benefits in terms of yield increase and resistance to harsh climate conditions. We rely on Real Options Analysis to assess the two types of investment opportunities for the farmer. This approach allows us to determine not only whether the investments should be undertaken or not, but also the optimal timing to do so. We find that one quinoa variety (Kancolla) offers the highest benefits to the farmer and switching to this option should be immediate if investment costs are low; however, as costs increase, the decision to switch quinoa variety is optimally postponed until quinoa price uncertainty is reduced. We find that the Waru Waru option is not worth undertaking unless further evidence related to the increase in the productivity of quinoa is developed. However, at increases in productivity above 20%, the Waru Waru option becomes highly attractive. The article also discusses how quinoa price dynamics, yield sensitivity to frost, and governmental support impact decisions of the smallholder farmer.

We study an infinite horizon consumption-portfolio allocation problem in continuous time where asset prices follow L ́evy processes and the investor is concerned about potential model misspecification of his reference model. We derive optimal portfolio holdings in closed form in the presence of model uncertainty, where we analyze perturbations to the reference model in the form of both drift and jump intensity perturbations. Furthermore, we present a method for calculating error-detection probabilities by means of Fourier inversion techniques of the conditional characteristic function in the case when the measure change follows a jump-diffusion process.

Evidence suggests that acquiring human capital is related to better life outcomes, yet young peoples' decisions to invest in or stop acquiring human capital are still poorly understood. We investigate the role of time and reference-dependent preferences in such decisions. Using a data set that is unique in its combination of real-world observations on student outcomes and experimental data on economic preferences, we find that a low degree of long-run patience is a key determinant of dropping out of upper-secondary education. Further, for students who finish education we show that one month before termination of their program, present-biased students are less likely to have concrete continuation plans while loss averse students are more likely to have a definite job offer already. Our findings provide fresh evidence on students' decision-making about human capital acquisition and labor market transition with important implications for education and labor market policy.

We study managers’ decisions to bias financial reports if these reports are used by capital and labor markets to learn about firm value and managerial talent. If managers have private information on their financial and reputational incentives, we identify interactions in the capital and labor markets’ use of reports: The reception of reports in one market motivates reporting bias, which reduces value relevance and price efficiency in the other market. This interaction changes established results and has implications for financial reporting standard setters: We characterize environments where capital market efficiency can be improved by eliminating information on managerial talent from financial reports – even if this information is relevant for investors. This is particularly the case if there is high uncertainty about managers’ reputational concerns and if talent uncertainty represents a small part of the overall fundamental uncertainty.