|03.11.2021||Julian Hinz, Universität Bielefeld|
|Frictions to intranational investment (with Inga Heiland) |
Despite unhalted technological progress in transport and communication infrastructure over the past century, geographical and cultural distance remain major obstacles to the flow of goods and production factors to date. In this paper, we show that geographical and cultural distance forcefully shape intranational investment flows in Norway, preventing an efficient allocation of capital to firms. To that end, we derive a structural gravity equation of investment from a general equilibrium model with multiple locations, multiple assets, and information frictions. Based on the model, we identify frictions related to geographical distance, travel time, administrative borders, and language differences and quantify the loss in terms of portfolio efficiency caused by each individual friction and by gravity as a whole. We also aim to study the impact of major infrastructure developments during the 2000s through the lens of the model: The politically-driven roll-out of broadband internet access across the country and the rapid expansion of the flight route network driven by Norwegian Airlines. Finally, we aim to deliver ex-ante predictions for the effects of a railway line connecting Northern Norway to the country’s main rail network, as well as the effects of a change to the speed limit on major road connections.
|10.11.2021||Julian Thimme, Karlsruhe Institute of Technology|
|A Skeptical Appraisal of Robust Asset Pricing Tests (with Tim A. Kroencke) |
We analyze the size and power of a large number of “robust” asset pricing tests, investigating the hypothesis that the price of risk of a candidate factor is equal to zero. Different from earlier studies, our bootstrap approach puts all tests on an equal footing and focuses on sample sizes comparable to standard applications in asset pricing research. Thus, our paper provides guidance for researchers about which method to use. We find that the classic Fama-MacBeth/Shanken approach rarely over-rejects useless factors and provides a reasonable balance between size and power. In contrast, some of the “robust” methods suffer from poor power in realistic sample sizes, especially in situations where the asset pricing model is mildly misspecified.
|17.11.2021||Frank Stähler, Eberhard-Karls-Universität Tübingen|
|The (Non-)Neutrality of Value Added Taxation |
This paper employs a structural gravity model for ﬁnal goods trade and novel VAT regime data to investigate the impact of value-added taxes (VATs) on ﬁnal goods imports and domestic production of ﬁnal goods. We show that a VAT increase does not only reduce imports and internal trade of ﬁnal goods but also leads to a relative increase in internal trade compared to aggregate imports. This result can only be explained by changes in pre-tax pricing behavior. A conservative quantiﬁcation shows that a 1%increase in the VAT rate implies a welfare loss of 1.6 to 3.2 % in the European Union.
|19.01.2022||Daniel Krähmer, Universität Bonn|
Dynamic Screening with Verifiable Bankruptcy
|26.01.2022||Jacub Steiner, CERGE-EI Prague und Universität Zürich|
|Consumer Surplus in the Dark (joint with Pavel Kocourek and Colin Stewart) |
A growing body of evidence suggests that consumers are not fully informed about prices, contrary to a critical assumption of classical welfare analysis. We analyze a model in which consumers can vary in both their preferences and their information about prices. Given an aggregate demand curve and a distribution of prices, we identify the set of rationalizable aggregate consumer surpluses. Each surplus in this set can be rationalized with simple information structures and preferences.