Contributions in Merlin

Climate physical risk assessment is crucial to inform adaptation policies and finance. However, science-based and transparent solutions to assess climate physical risks are still missing. This is a main limitation to fill the adaptation gap. We provide a methodology that quantifies physical risks on geolocalized productive assets, considering their exposure to both chronic and acute impacts (hurricanes) across the scenarios of the Intergovernmental Panel on Climate Change. Then, we translate asset-level shocks into economic and financial losses. We illustrate the methodology in an application to Mexico, a country that is highly exposed to physical risks, and attracts adaptation finance and foreign investments. We find that investor losses are underestimated up to 70% when neglecting asset-level information, and up to 82% when neglecting acute risks. Therefore, neglecting the asset-level and acute dimensions of physical risks can lead to large errors in the identification of the relevant adaptation policy response, investments and finance tools aimed to build resilience to climate change.

Risk parity portfolio optimization, using expected shortfall as the risk measure, is investigated when asset returns are fat-tailed and heteroscedastic. The conditional return distribution is modeled by an elliptical multivariate generalized hyperbolic distribution, allowing for fast parameter estimation, via an expectation-maximization algorithm and a semi-closed form of the risk contributions. The efficient computation of non-Gaussian risk parity weights sidesteps the need for numerical simulations or Cornish-Fisher-type approximations. Accounting for fat-tailed returns, the risk parity allocation is less sensitive to volatility shocks, thereby generating lower portfolio turnover, in particular during market turmoils such as the global financial crisis. Although risk parity portfolios are surprisingly robust to the misuse of the Gaussian distribution, a more realistic model for conditional returns and time-varying volatilies can improve risk-adjusted returns, reduces turnover during periods of market stress and enables the use of a holistic risk model for portfolio and risk management.

We examine a stochastic growth process that can alternatively be interpreted as a model of economic growth, financial portfolio management, statistical inference, or biological population growth. For the economic interpretation, we find that the growth-maximizing policy satisfies a meritocracy principle: it minimizes the discrepancy between the resource shares allocated to the agents and the agents' ``merits.'' For the statistical interpretation, the setting is equivalent to a model of predictive coding, in which a misspecified system maximizes the fit of data. A consistency principle analogous to the meritocracy principle requires the optimal fit to minimize a degree of Bayes inconsistency.

To combat climate change without sacrificing long-term economic growth, innovation must be redirected toward green technologies. In this paper, we review a recent literature that has developed a directed technical change framework where innovation can be endogenously targeted either toward fossil-fuel enhancing technologies or clean energy sources (such as renewables). We provide empirical evidence of path dependence in firms’ choice between green and dirty innovation. We then draw implications of this path dependence for the design of environmental policy and for economic growth. In particular, we show that our framework has distinctive implications regarding unilateral environmental policies, international cooperation, the use of intermediate energy sources such as natural gas, and the role of civil society.

Actual and perceived gender norms are key to understanding gender inequality in society. In this paper, using newly collected nationally representative datasets from 60 countries that cover over 80% of the world population, we study gender norms on two distinct policy issues: 1) basic rights, allowing women to work outside of the home, and 2) affirmative action, prioritizing women when hiring for leadership positions. We establish that misperceptions of gender norms are pervasive across the world. The nature of the misperception, however, is context-dependent. In less gender-equal countries, people underestimate support for both policies, particularly among men; in more gender-equal countries, people overestimate support for affirmative action, particularly among women, and underestimate support for basic rights. We provide evidence of gender stereotyping and overweighting of the minority view as potential drivers of the global patterns of misperceptions. Together, our findings indicate how misperceptions of gender norms may obstruct progress toward gender equality, but also may contribute to sustaining gender policies that are not necessarily favored by women themselves.

International tax rules are commonly viewed as obsolete as multinational corporations exploit loopholes to move their profits to tax havens. This paper uncovers how international tax reforms can curb profit shifting and impact real income and welfare across nations. We build a model of international corporate tax avoidance under imperfect competition that disentangles profits that stem from real economic activity from paper profits that are booked in tax havens. Our framework delivers a set of ``triangle identities'' through which we recover bilateral profit-shifting flows. Using different data sources ranging from publicly available to firm-level datasets, we find an elasticity of paper profits that is three times larger than the elasticity of the tax base. In our quantitative model, a global minimum tax increases welfare by inducing higher tax revenues and public good provision. It also encourages countries to raise their statutory corporate tax rates as it effectively reduces tax competition. Instead, a border adjustment tax (BAT) that eliminates profit shifting distorts multinational production and may result in welfare losses. A tax reform in the spirit of the destination-based cash-flow tax, combining a BAT with a reduction in the corporate income tax rate may induce efficiency gains at the expense of public good provision.

What is the impact of the oral contraceptive pill on the mental health of adolescent girls? Using administrative data from Denmark and exploiting the variation in the timing of pill initiation in an event study design, we find that the likelihood of a depression diagnosis and antidepressant use increases shortly after pill initiation. We then uncover substantial variation in primary care providers' tendency to prescribe the pill to adolescents, unrelated to patient characteristics. Being assigned to a high prescribing physician strongly predicts pill use by age 16 and leads to worse mental health outcomes between ages 16-18.

Increasing inequality and associated egalitarian sentiments have put redistribution on the political agenda. In this paper, we take advantage of Swiss direct democracy, where people voted several times on strongly redistributive policies in national plebiscites, to study the link between social preferences and a behaviorally validated measure of support for redistribution in a broad sample of the Swiss population. Using a novel nonparametric Bayesian clustering algorithm, we uncover the existence of three fundamentally distinct preference types in the population: predominantly selfish, inequality averse and altruistic individuals. We show that inequality averse and altruistic individuals display a much stronger support for redistribution, particularly if they are more affluent. In addition, we show that previously identified key motives underlying opposition to redistribution – such as the belief that effort is an important driver of individual success – play no role for selfish individuals but are highly relevant for other-regarding individuals. Finally, while inequality averse individuals display strong support for policies that primarily aim to reduce the incomes of the rich, altruistic individuals are considerably less supportive of these policies. Thus, knowledge about the qualitative properties of social preferences and their distribution in the population also provides insights into which preference type supports specific redistributive policies, which has implications for how policy makers may design redistributive packages to maximize political support for them.

Can two parties reach an ex-post Pareto efficient trade agreement? The importance of the question was elucidated by Coase (1960), and Myerson and Satterthwaite (1983) provided a commonly accepted negative answer that such agreement is impossible when the parties are privately informed. We show that this negative answer depends on the assumption of quasi-linear preferences: efficient trade is possible if risk- aversion or wealth effects are sufficiently large or if agents’ utility is not too responsive to private information. Under empirically-grounded specifications of risk aversion and elasticity of trade, two parties can trade efficiently despite substantial asymmetry of information.

The annual adverse effects of pollution are on the order of 10% of world GDP. Many approaches are used or have been proposed to control the growing pollution problem, but none of them allows for efficient pollution control in settings in which the marginal cost of pollution is increasing and polluters are better informed than regulators about the costs of abatement. We propose a simple primary market mechanism, True-Cost Pay as Bid, that implements efficient pollution control and does not depend on how much information the regulators have about the abatement costs.