pwc-archive/papers-with-abstracts huggingface dataset:
Cross-border cannibalization: Spillover effects of wind and solar energy on interconnected European electricity markets
Authors: Clemens Stiewe, Alice Lixuan Xu, Anselm Eicke, Lion Hirth
Date: 2024-05-27 00:00:00

The average revenue, or market value, of wind and solar energy tends to fall with increasing market shares, as is now evident across European electricity markets. At the same time, these markets have become more interconnected. In this paper, we empirically study the multiple cross-border effects on the value of renewable energy: on one hand, interconnection is a flexibility resource that allows to export energy when it is locally abundant, benefitting renewables. On the other hand, wind and solar radiation are correlated across space, so neighboring supply adds to the local one to depress domestic prices. We estimate both effects, using spatial panel regression on electricity market data from 2015 to 2023 from 30 European bidding zones. We find that domestic wind and solar value is not only depressed by domestic, but also by neighboring renewables expansion. The better interconnected a market is, the smaller the effect of domestic but the larger the effect of neighboring renewables. While wind value is stabilized by interconnection, solar value is not. If wind market share increases both at home and in neighboring markets by one percentage point, the value factor of wind energy is reduced by just above 1 percentage points. For solar, this number is almost 4 percentage points.
Two-way fixed effects instrumental variable regressions in staggered DID-IV designs
Authors: Sho Miyaji
Date: 2024-05-26 00:00:00

Many studies run two-way fixed effects instrumental variable (TWFEIV) regressions, leveraging variation in the timing of policy adoption across units as an instrument for treatment. This paper studies the properties of the TWFEIV estimator in staggered instrumented difference-in-differences (DID-IV) designs. We show that in settings with the staggered adoption of the instrument across units, the TWFEIV estimator can be decomposed into a weighted average of all possible two-group/two-period Wald-DID estimators. Under staggered DID-IV designs, a causal interpretation of the TWFEIV estimand hinges on the stable effects of the instrument on the treatment and the outcome over time. We illustrate the use of our decomposition theorem for the TWFEIV estimator through an empirical application.
Dynamic Latent-Factor Model with High-Dimensional Asset Characteristics
Authors: Adam Baybutt
Date: 2024-05-24 00:00:00
Tasks: valid

We develop novel estimation procedures with supporting econometric theory for a dynamic latent-factor model with high-dimensional asset characteristics, that is, the number of characteristics is on the order of the sample size. Utilizing the Double Selection Lasso estimator, our procedure employs regularization to eliminate characteristics with low signal-to-noise ratios yet maintains asymptotically valid inference for asset pricing tests. The crypto asset class is well-suited for applying this model given the limited number of tradable assets and years of data as well as the rich set of available asset characteristics. The empirical results present out-of-sample pricing abilities and risk-adjusted returns for our novel estimator as compared to benchmark methods. We provide an inference procedure for measuring the risk premium of an observable nontradable factor, and employ this to find that the inflation-mimicking portfolio in the crypto asset class has positive risk compensation.
Empirical Crypto Asset Pricing
Authors: Adam Baybutt
Date: 2024-05-24 00:00:00

We motivate the study of the crypto asset class with eleven empirical facts, and study the drivers of crypto asset returns through the lens of univariate factors. We argue crypto assets are a new, attractive, and independent asset class. In a novel and rigorously built panel of crypto assets, we examine pricing ability of sixty three asset characteristics to find rich signal content across the characteristics and at several future horizons. Only univariate financial factors (i.e., functions of previous returns) were associated with statistically significant long-short strategies, suggestive of speculatively driven returns as opposed to more fundamental pricing factors.
Modularity, Higher-Order Recombination, and New Venture Success
Authors: Likun Cao, Ziwen Chen, James Evans
Date: 2024-05-23 00:00:00

Modularity is critical for the emergence and evolution of complex social, natural, and technological systems robust to exploratory failure. We consider this in the context of emerging business organizations, which can be understood as complex systems. We build a theory of organizational emergence as higher-order, modular recombination wherein successful start-ups assemble novel combinations of successful modular components, rather than engage in the lower-order combination of disparate, singular components. Lower-order combinations are critical for long-term socio-economic transformation, but manifest diffuse benefits requiring support as public goods. Higher-order combinations facilitate rapid experimentation and attract private funding. We evaluate this with U.S. venture-funded start-ups over 45 years using company descriptions. We build a dynamic semantic space with word embedding models constructed from evolving business discourse, which allow us to measure the modularity of and distance between new venture components. Using event history models, we demonstrate how ventures more likely achieve successful IPOs and high-priced acquisitions when they combine diverse modules of clustered components. We demonstrate how higher-order combination enables venture success by accelerating firm development and diversifying investment, and we reflect on its implications for social innovation.
A Branch-Price-Cut-And-Switch Approach for Optimizing Team Formation and Routing for Airport Baggage Handling Tasks with Stochastic Travel Times
Authors: Andreas Hagn, Rainer Kolisch, Giacomo Dall'Olio, Stefan Weltge
Date: 2024-05-31 00:00:00

In airport operations, optimally using dedicated personnel for baggage handling tasks plays a crucial role in the design of resource-efficient processes. Teams of workers with different qualifications must be formed, and loading or unloading tasks must be assigned to them. Each task has a time window within which it can be started and should be finished. Violating these temporal restrictions incurs severe financial penalties for the operator. In practice, various components of this process are subject to uncertainties. We consider the aforementioned problem under the assumption of stochastic travel times across the apron. We present two binary program formulations to model the problem at hand and propose a novel solution approach that we call Branch-Price-Cut-and-Switch, in which we dynamically switch between two master problem formulations. Furthermore, we use an exact separation method to identify violated rank-1 Chv\'atal-Gomory cuts and utilize an efficient branching rule relying on task finish times. We test the algorithm on instances generated based on real-world data from a major European hub airport with a planning horizon of up to two hours, 30 flights per hour, and three available task execution modes to choose from. Our results indicate that our algorithm is able to significantly outperform existing solution approaches. Moreover, an explicit consideration of stochastic travel times allows for solutions that utilize the available workforce more efficiently, while simultaneously guaranteeing a stable service level for the baggage handling operator.
Inflation Determinants in Argentina (2004-2022)
Authors: Pablo de la Vega, Guido Zack, Jimena Calvo, Emiliano Libman
Date: 2024-05-31 00:00:00

This paper analyzes the empirical relationship between the inflation rate and its proximate determinants in Argentina, using quarterly data over the period 2004-2022 and an error-correction vector model approach. Unlike previous literature, this paper uses a theoretical framework to motivate the inclusion of variables that are expected to contribute to explain inflation, thus reducing the risk of omitting relevant variables and formalizing key mechanisms. Inference is performed through Granger causality analysis, impulse response functions and forecast errors variance decomposition. The results suggest that an anti-inflationary plan for Argentina should take into consideration both the greater relevance of the inertial component, the exchange rate and the interest rate in the short-run dynamics of the price level, and the long-run relationship between prices, interest rate and activity level.
Tracking the Credibility Revolution across Fields
Authors: Paul Goldsmith-Pinkham
Date: 2024-05-31 00:00:00

This paper updates Currie, Kleven, and Zwiers (2020) by examining the credibility revolution across fields, including finance and macroeconomics, using NBER working papers up to May 2024. While the growth in terms related to identification and research designs have continued, finance and macroeconomics have lagged behind applied micro. Difference-in-differences and regression discontinuity designs have risen since 2002, but the growth in difference-in-difference has been larger, more persistent, and more ubiquitous. In contrast, instrumental variables have stayed flat over this period. Finance and macro, particularly corporate finance, has experienced significant growth in mentions of experimental and quasi-experimental methods and identification over this time period, but a large component of the credibility revolution in finance is due to difference-in-differences. Bartik and shift-share instruments have grown across all fields, with the most pronounced growth in international trade and investment, economic history, and labor studies. Synthetic control has not seen continued growth, and has fallen since 2020.
Divide and Diverge: Polarization Incentives
Authors: Giampaolo Bonomi
Date: 2024-05-31 00:00:00

We study polarization in a probabilistic voting model with aggregate shocks and a decreasing marginal utility from office rents. In equilibrium, parties offer different policies, despite being rent-motivated and ex-ante identical from the point of view of voters. When candidates compete on a single policy issue, parties' equilibrium payoffs increase in voter polarization, even when the change is driven by the supporters of the opposite party becoming more extreme. With multiple policy issues, parties benefit if the society is split into two factions and the ideological cohesion within such factions increases. We connect our results to empirical evidence on polarizing political communication, party identity, and zero-sum thinking, and find that polarization could be reduced by intervening on the electoral rule.
AI Diffusion to Low-Middle Income Countries; A Blessing or a Curse?
Authors: Rafael Andersson Lipcsey
Date: 2024-05-30 00:00:00

Rapid advancements in AI have sparked significant research into its impacts on productivity and labor, which can be profoundly positive or negative. Often overlooked in this debate is understanding of how AI technologies spread across and within economies. Equally ignored are developing economies facing substantial labor market impacts from rapid, and a loss in competitiveness, from slow AI diffusion. This paper reviews literature on technology diffusion and proposes a three-way framework for understanding AI diffusion: global value chains, research collaboration, and inter-firm knowledge transfers. This is used to measure AI diffusion in sixteen low-middle-income, and four developed economies, as well as to evaluate dependence on China and the USA for access to AI technologies. The study finds a significant gap in diffusion rates between the two groups, but current trends indicate it is narrowing. China is identified as a crucial future source of AI diffusion through value chains, while the USA is more influential in research and knowledge transfers. The paper's limitations include the omission of additional data sources and countries, and the lack of investigation into the relationship between diffusion and technology intensity. Nonetheless, it raises salient macro-level questions about AI diffusion and suggests emphasis on redistribution mechanisms of AI induced economic gains, and bilateral agreements as a complement to international accords, to address diverse needs and corresponding risks faced by economies transitioning into an AI-dominated era. Additionally, it highlights the need for research into the links between AI diffusion, technology intensity, and productivity; case studies combined with targeted policy recommendations; more accurate methods for measuring AI diffusion; and a deeper investigation into its labor market impacts particular to LMICs.
Tuition too high? Blame competition
Authors: Oleg V. Pavlov, Evangelos Katsamakas
Date: 2024-05-28 00:00:00

We develop a feedback theory that includes reinforcing and balancing feedback effects that emerge when colleges compete for reputation, applicants, and tuition revenue. The feedback theory is replicated in a formal duopoly model consisting of two competing colleges. An independent ranking entity determines the relative order of the colleges. College applicants choose between the two colleges based on the rankings and the financial aid offered by the colleges. Contrary to the conventional wisdom that competition lowers prices and benefits consumers, our simulations show that competition between academic institutions for resources and reputation leads to tuition escalation that negatively affects students and their families. Four of the five scenarios -- rankings, a capital campaign, facilities improvements, and an excellence campaign -- increase college tuition, institutional debt, and expenditures per student; only the scenario of ignoring the rankings decreases these measures. By referring to the feedback structure of academic competition, the article makes several recommendations for controlling tuition inflation. This article contributes to the literature on the economics of higher education and illustrates the value of feedback economics in developing economic theory.
Managing Financial Climate Risk in Banking Services: A Review of Current Practices and the Challenges Ahead
Authors: Victor Cardenas
Date: 2024-05-27 00:00:00
Tasks: Management

The document discusses the financial climate risk in the context of the banking industry, emphasizing the need for a comprehensive understanding of climate change across different spatial and temporal scales. It highlights the challenges in estimating physical and transition risks, specifically extreme events and limitations of current climate models. The document also reviews current gaps in assessing physical and transition risks, including the development, improvement of modeling frameworks, highlighting the need for detailed databases of exposed physical assets and climatic hazard modeling. It also emphasizes the importance of integrating financial climate risks into financial risk management practices, particularly in smaller banks and lending organizations.
Effect of Interest Payments on External Debt on Economic Growth in Kenya
Authors: Sammy Kemboi Chepkilot
Date: 2024-05-25 00:00:00

In Kenya, interest payments on external debt have been increasing from 2010 to 2015, while GDP growth experienced a slight decline over the same period. Policymakers are concerned that the rapid increase in external debt in developing countries such as Kenya has the potential to erode the country's sovereign rating, particularly if it is not supported by proportionate growth in the size of the economy. The purpose of this study was to investigate the effect of interest payments on external debt on economic growth in Kenya. The study utilized secondary data for 25 years, from 1991 to 2015, for GDP growth and interest payments on external debt. The results from the analysis of variance statistics indicate that the model was statistically significant. This implies that interest payments on external debt are good predictors of GDP growth. Regression coefficient results show that GDP growth and the logarithm of interest payments on external debt are negatively and significantly related. The study recommends that future government plans should ensure that external borrowings are taken at rates not higher than the interest rate payments.
The Mariana Environmental Disaster and its Labor Market Effects
Authors: Hugo Sant'Anna
Date: 2024-05-24 00:00:00

This paper examines the labor market impacts of the 2015 Mariana Dam disaster in Brazil. It contrasts two theoretical models: an urban spatial equilibrium model and a factor of production model, with diverging perspectives on environmental influences on labor outcomes. Utilizing rich national administrative and spatial data, the study reveals that the unusual environmental alteration, with minimal human capital loss, primarily affected outcomes via the factor of production channel. Nevertheless, spatial equilibrium dynamics are discernible within certain market segments. This research contributes to the growing literature on environmental changes and its economic consequences.
Serving economic prosperity: economic impact assessments (EIA) on Earth observation-based services and tools by SERVIR
Authors: Reetwika Basu, Eric Anderson, Chinmay Deval, Kelsey Herndon, Amanda Markert, Lena Pransky, Emil Cherrington, Aparna Phalke, Alqamah Sayeed
Date: 2024-05-24 00:00:00
Tasks: Decision Making, Earth Observation, Management

In an era where informed decision-making is paramount for sustainable development and effective resource management, the role of Earth observations (EO) in shaping economic landscapes cannot be overstated. EO, facilitated by satellites, sensors, and data analytics, is a cornerstone for evidence-based policymaking, risk mitigation, and resource allocation. SERVIR is a joint initiative of US Agency for International Development and NASA. This paper presents a comprehensive survey of relevant economic impact assessment (EIA) work, summarizes SERVIRs potential interests in EIA, and identifies how and where EIA could improve how SERVIR quantifies and communicates the impact of its services.
Digital finance, Bargaining Power and Gender Wage Gap
Authors: Qing Guo, Siyu Chen, Xiangquan Zeng
Date: 2024-05-24 00:00:00

The proliferation of internet technology has catalyzed the rapid development of digital finance, significantly impacting the optimization of resource allocation in China and exerting a substantial and enduring influence on the structure of employment and income distribution. This research utilizes data sourced from the Chinese General Social Survey and the Digital Financial Inclusion Index to scrutinize the influence of digital finance on the gender wage disparity in China. The findings reveal that digital finance reduces the gender wage gap, and this conclusion remains robust after addressing endogeneity problem using instrumental variable methods. Further analysis of the underlying mechanisms indicates that digital finance facilitates female entrepreneurship by lowering financing barriers, thereby promoting employment opportunities for women and also empowering them to negotiate higher wages. Specially, digital finance enhances women's bargaining power within domestic settings, therefore exerts a positive influence on the wages of women. Sub-sample regressions demonstrate that women from economically disadvantaged backgrounds, with lower human capital, benefit more from digital finance, underscoring its inclusive nature. This study provides policy evidence for empowering vulnerable groups to increase their wages and addressing the persistent issue of gender income disparity in the labor market.
Multimarket Contact, Merger, and Airline Collusion
Authors: Ziyu Yan
Date: 2024-05-23 00:00:00

This thesis investigates the dynamics of multimarket contact and airline mergers on collusive pricing of airlines. In align with Bernheim and Whinston (1990) and Athey et.al.(2004), it detects collusive pricing via pairwise price difference and price rigidity. The piece of work extends previous work by incorporating additional controls such as distinction between non-stop and stopover itineraries and detailed market concentration measures. The findings confirm a significant relationship between multimarket contact and reduced price differences, indicating collusive equilibria facilitated by frequent interactions across markets. Moreover, the results highlight that airlines exhibit more collusive behavior when pricing non-stop flights, and are more likely to attain tacit collusion when they approaches duopoly in a particular market. The study also explores the effects of airline mergers on collusion, employing an event study methodology with a difference-in-difference (DID) design. It finds no direct evidence that mergers lead to increased collusion among unmerged carriers. However, it reveals that during and after the merger process, carrier pairs between merged and unmerged carriers are more likely to collude compared to pairs of unmerged carriers.
The Impact of Social Media on Music Demand: Evidence from a Quasi-Natural Experiment
Authors: Daniel Winkler, Christian Hotz-Behofsits, Nils Wlömert, Dominik Papies, Jura Liaukonyte
Date: 2024-05-23 00:00:00

The digital age has significantly changed how music is consumed, promoted, and monetized. Social media platforms like TikTok are playing a pivotal role in this transformation. This shift has sparked a debate within the music industry: While some stakeholders see social media platforms like TikTok as opportunities to boost songs to viral status, others raise concerns about potential cannibalization effects, fearing that such exposure might reduce revenue from streaming services like Spotify. In this paper, we evaluate the effect of a song's presence - or absence - on social media on its demand on music streaming services using a quasi-natural experiment: Universal Music Group's (UMG) - one of "The Big 3" record labels - decision to remove its entire content library from TikTok in February 2024. We use representative samples covering close to 50% of the US and 94% of the German streaming markets, employing a difference-in-differences approach to compare the streaming consumption of songs that were removed from TikTok with those that were not. We find that UMG's removal of music from TikTok led to a 2-3% increase in streams on audio platforms for affected songs, indicating substitution effects. However, this average treatment effect masks significant heterogeneity: older songs and songs with less promotional support elsewhere saw a decrease in streaming consumption, suggesting that TikTok helps consumers discover or rediscover content that is not top of mind for consumers.
Prediction of healthcare costs on consumer direct health plan in the Brazilian context
Authors: Claudia M. Peixoto, Diego Marcondes, Mariana P. Melo, Ana C. Maia, Luis A. Correia
Date: 2024-04-20 00:00:00

The rise in healthcare costs has led to the adoption of cost-sharing devices in health plans. This article explores this discussion by simulating Health Savings Accounts (HSAs) to cover medical and hospital expenses, supported by catastrophic insurance. Simulating 10 million lives, we evaluate the utilization of catastrophic insurance and the balances of HSAs at the end of working life. To estimate annual expenditures, a Markov Chains approach - distinct from the usual ones - was used based on recent past expenditures, age range, and gender. The results suggest that HSAs do not create inequalities, offering a viable method to sustain private healthcare financing for the elderly.