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Institute
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363
With free delivery of products virtually being a standard in E-commerce, product returns pose a major challenge for online retailers and society. For retailers, product returns involve significant transportation, labor, disposal, and administrative costs. From a societal perspective, product returns contribute to greenhouse gas emissions and packaging disposal and are often a waste of natural resources. Therefore, reducing product returns has become a key challenge. This paper develops and validates a novel smart green nudging approach to tackle the problem of product returns during customers’ online shopping processes. We combine a green nudge with a novel data enrichment strategy and a modern causal machine learning method. We first run a large-scale randomized field experiment in the online shop of a German fashion retailer to test the efficacy of a novel green nudge. Subsequently, we fuse the data from about 50,000 customers with publicly-available aggregate data to create what we call enriched digital footprints and train a causal machine learning system capable of optimizing the administration of the green nudge. We report two main findings: First, our field study shows that the large-scale deployment of a simple, low-cost green nudge can significantly reduce product returns while increasing retailer profits. Second, we show how a causal machine learning system trained on the enriched digital footprint can amplify the effectiveness of the green nudge by “smartly” administering it only to certain types of customers. Overall, this paper demonstrates how combining a low-cost marketing instrument, a privacy-preserving data enrichment strategy, and a causal machine learning method can create a win-win situation from both an environmental and economic perspective by simultaneously reducing product returns and increasing retailers’ profits.
189
This paper studies the long-run effects of credit market disruptions on real firm outcomes and how these effects depend on nominal wage rigidities at the firm level. I trace out the long-run investment and growth trajectories of firms which are more adversely affected by a transitory shock to aggregate credit supply. Affected firms exhibit a temporary investment gap for two years following the shock, resulting in a persistent accumulated growth gap. I show that affected firms with a higher degree of wage rigidity exhibit a steeper drop in investment and grow more slowly than affected firms with more flexible wages.
18
The paper uses fiscal reaction functions for a panel of euro-area countries to investigate whether euro membership has reduced the responsiveness of countries to shocks in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, such as an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from preexisting debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply.
111
The pressure on tax haven countries to engage in tax information exchange shows first effects on capital markets. Empirical research suggests that investors do react to information exchange and partially withdraw from previous secrecy jurisdictions that open up to information exchange. While some of the economic literature emphasizes possible positive effects of tax havens, the present paper argues that proponents of positive effects may have started from questionable premises, in particular when it comes to the effects that tax havens have for emerging markets like China and India.
209
This paper studies the distributional consequences of a systematic variation in expenditure shares and prices. Using European Union Household Budget Surveys and Harmonized Index of Consumer Prices data, we construct household-specific price indices and reveal the existence of a pro-rich inflation in Europe. Particularly, over the period 2001-15, the consumption bundles of the poorest deciles in 25 European countries have, on average, become 10.5 percentage points more expensive than those of the richest decile. We find that ignoring the differential inflation across the distribution underestimates the change in the Gini (based on consumption expenditure) by up to 0.03 points. Cross-country heterogeneity in this change is large enough to alter the inequality ranking of numerous countries. The average inflation effect we detect is almost as large as the change in the standard Gini measure over the period of interest.
360
This note argues that in a situation of an inelastic natural gas supply a restrictive monetary policy in the euro zone could reduce the energy bill and therefore has additional merits. A more hawkish monetary policy may be able to indirectly use monopsony power on the gas market. The welfare benefits of such a policy are diluted to the extent that some of the supply (approximately 10 percent) comes from within the euro zone, which may give rise to distributional concerns.
387
The European low-carbon transition began in the last few decades and is accelerating to achieve net-zero emissions by 2050. This paper examines how climate-related transition indicators of a large European corporate firm relate to its CDS-implied credit risk across various time horizons. Findings show that firms with higher GHG emissions have higher CDS spreads at all tenors, including the 30-year horizon, particularly after the 2015 Paris Agreement, and in prominent industries such as Electricity, Gas, and Mining. Results suggest that the European CDS market is currently pricing, to some extent, albeit small, the exposure to transition risk for a firm across different time horizons. However, it fails to account for a company’s efforts to manage transition risks and its exposure to the EU Emissions Trading Scheme. CDS market participants seem to find challenging to risk-differentiate ETS-participating firms from other firms.
82
Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged asset rich households. This paper takes the perspective of the three demographically oldest European nations — France, Germany and Italy — to address three important adjustment channels to dampen these detrimental effects of aging in these countries: investing abroad, endogenous human capital formation and increasing the retirement age. Our quantitative finding is that endogenous human capital formation in combination with an increase in the retirement age has strong implications for economic aggregates and welfare, in particular in the open economy. These adjustments reduce the maximum welfare losses of demographic change for households alive in 2010 by about 2.2 percentage points in terms of a consumption equivalent variation.
5
We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above other option-implied variables. Stock-specific tail loss measure predicts individual expected returns and magnitude of realized stock-specific crashes in the cross-section of stocks. An investor that cares about the left tail of her wealth distribution benefits from using the tail loss measure as an information variable to construct managed portfolios of a risk-free asset and market index.
142
Using two datasets containing demographically representative samples of the Dutch population, I study how lifetime experiences of aggregate labor market conditions affect personality. Three sets of findings are reported. First, experienced aggregate unemployment is negatively correlated with the levels of all Big Five personality traits, except for conscientiousness (no significant correlation). Second, in panel data models with individual fixed effects I find that changes in experienced aggregate unemployment cause changes in emotional stability and agreeableness for men, and conscientiousness for women. The correlation is positive, and effects are economically large. Thirdly, I report suggestive evidence that the main driver is experienced aggregate unemployment, instead of other macroeconomic variables as experienced GDP, stock market returns or inflation. Taken together, these findings suggest that changes in Big Five personality traits are systematically related to experienced aggregate labor market conditions.
250
Do household inflation expectations affect consumption-savings decisions? We link survey data on quantitative inflation expectations to administrative data on income and wealth. We document that households with higher inflation expectations save less. Estimating panel data models with year and household fixed effects, we find that a one percentage point increase in a household's inflation expectation over time is associated with a 250-400 euro reduction in the household's change in net worth per year on average. We also document that households with higher inflation expectations are more likely to acquire a car and acquire higher-value cars. In addition, we provide a quantitative model of household-level inflation expectations.
237
A number of recent studies have concluded that consumer spending patterns over the month are closely linked to the timing of income receipt. This correlation is interpreted as evidence of hyperbolic discounting. I re-examine patterns of spending in the diary sample of the U.S. Consumer Expenditure Survey, incorporating information on the timing of the main consumption commitment for most households - their monthly rent or mortgage payment. I find that non-durable and food spending increase with 30-48% on the day housing payments are made, with smaller increases in the days after. Moreover, households with weekly, biweekly and monthly income streams but the same timing of rent/mortgage payments have very similar consumption patterns. Exploiting variation in income, I find that households with extra liquidity decrease non-durable spending around housing payments, especially those households with a large budget share of housing.
245
Self-control failure is among the major pathologies (Baumeister et al. (1994)) affecting individual investment decisions which has hardly been measurable in empirical research. We use cigarette addiction identified from checking account transactions to proxy for low self-control and compare over 5,000 smokers to 14,000 nonsmokers. Smokers self-directing their investment trade more frequently, exhibit more biases and achieve lower portfolio returns. We also find that smokers, some of which might be aware of their limited levels of self-control, exhibit a higher propensity than nonsmokers to delegate decision making to professional advisors and fund managers. We document that such precommitments work successfully.
125
This paper investigates the potential implications of say on pay on management remuneration in Germany. We try to shed light on some key aspects by presenting quantitative data that allows us to gauge the pertinent effects of the German natural experiment that originates with the 2009 amendments to the Stock Corporation Act of 1965. In order to do this, we deploy a hand-collected data set for Germany's major firms (i.e. DAX 30), for the years 2006-2012. Rather than focusing exclusively on CEO remuneration we collected data for all members of the management board for the whole period under investigation. We observe that the compensation packages of management board members of Germany's DAX30-firms are quite closely linked to key performance measures. In addition, we find that salaries increase with the size of the company and that ownership concentration has no significant effect on compensation. Also, our findings suggest that the two-tier system seems to matter a lot when it comes to compensation. However, it would be misleading to state that we see no significant impact of the introduction of the German say on pay-regime. Our findings suggest that supervisory boards anticipate shareholder-behavior.
320
We study the design features of disclosure regulations that seek to trigger the green transition of the global economy and ask whether such regulatory interventions are likely to bring about sufficient market discipline to achieve socially optimal climate targets.
We categorize the transparency obligations stipulated in green finance regulation as either compelling the standardized disclosure of raw data, or providing quality labels that signal desirable green characteristics of investment products based on a uniform methodology. Both categories of transparency requirements can be imposed at activity, issuer, and portfolio level.
Finance theory and empirical evidence suggest that investors may prefer “green” over “dirty” assets for both financial and non-financial reasons and may thus demand higher returns from environmentally-harmful investment opportunities. However, the market discipline that this negative cost of capital effect exerts on “dirty” issuers is potentially attenuated by countervailing investor interests and does not automatically lead to socially optimal outcomes.
Mandatory disclosure obligations and their (public) enforcement can play an important role in green finance strategies. They prevent an underproduction of the standardized high-quality information that investors need in order to allocate capital according to their preferences. However, the rationale behind regulatory intervention is not equally strong for all categories and all levels of “green” disclosure obligations. Corporate governance problems and other agency conflicts in intermediated investment chains do not represent a categorical impediment for green finance strategies.
However, the many forces that may prevent markets from achieving socially optimal equilibria render disclosure-centered green finance legislation a second best to more direct forms of regulatory intervention like global carbon taxation and emissions trading schemes. Inherently transnational market-based green finance concepts can play a supporting role in sustainable transition, which is particularly important as long as first-best solutions remain politically unavailable.
340
We investigate whether the bank crisis management framework of the European banking union can effectively bar the detrimental influence of national interests in cross-border bank failures. We find that both the internal governance structure and decision making procedure of the Single Resolution Board (SRB) and the interplay between the SRB and national resolution authorities in the implementation of supranationally devised resolution schemes provide inroads that allow opposing national interests to obstruct supranational resolution. We also show that the Single Resolution Fund (SRG), even after the ratification of the reform of the European Stability Mechanism (ESM) and the introduction of the SRF backstop facility, is inapt to overcome these frictions. We propose a full supranationalization of resolution decision making. This would allow European authorities in charge of bank crisis management to operate autonomously and achieve socially optimal outcomes beyond national borders.
66
This paper contrasts the recent European initiatives on regulating corporate groups with alternative approaches to the phenomenon. In doing so it pays particular regard to the German codified law on corporate groups as the polar opposite to the piecemeal approach favored by E.U. legislation.
It finds that the European Commission’s proposal to submit (significant) related party transactions to enhanced transparency, outside fairness review, and ex ante shareholder approval is both flawed in its design and based on contestable assumptions on informed voting of institutional investors. In particular, the contemplated exemption for transactions with wholly owned subsidiaries allows controlling shareholders to circumvent the rule extensively. Moreover, vesting voting rights with (institutional) investors will not lead to the informed assessment that is hoped for, because these investors will rationally abstain from active monitoring and rely on proxy advisory firms instead whose competency to analyze non-routine significant related party transactions is questionable.
The paper further delineates that the proposed recognition of an overriding interest of the group requires strong counterbalances to adequately protect minority shareholders and creditors. Hence, if the Commission choses to go down this route it might end up with a comprehensive regulation that is akin to the unpopular Ninth Company Law Directive in spirit, though not in content. The latter prediction is corroborated by the pertinent parts of the proposal for a European Model Company Act.
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Germany Inc. was an idiosyncratic form of industrial organization that put financial institutions at the center. This paper argues that the consumption of private benefits in related party transactions by these key agents can be understood as a compensation for their coordinating and monitoring function in Germany Inc. As a consequence, legal tools apt to curb tunneling remained weak in Germany from the perspective of outside shareholders. While banks were in a position to use their firm-level knowledge and influence to limit rent-seeking by other related parties, their own behavior was not subject to meaningful controls. With the dismantling of Germany Inc. banks seized their monitoring function and left an unprecedented void with regard to related party transactions. Hence, a “traditionalist” stance which opposes law reform for related party transactions in Germany negatively affects capital market development, growth opportunities and ultimately social welfare.
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This paper is the national report for Germany prepared for the to the 20th General Congress of the International Academy of Comparative Law 2018 and gives an overview of the regulation of crowdfunding in Germany and the typical design of crowdfunding campaigns under this legal framework. After a brief survey of market data, it delineates the classification of crowdfunding transactions in German contract law and their treatment under the applicable conflict of laws regime. It then turns to the relevant rules in prudential banking regulation and capital market law. It highlights disclosure requirements that flow from both contractual obligations of the initiators of campaigns vis-à-vis contributors and securities regulation (prospectus regime). After sketching the most important duties of the parties involved in crowdfunding, the report also looks at the key features of the respective transactions’ tax treatment.
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Crowdfunding is a buzzword that signifies a sub-set in the new forms of finance facilitated by advances in information technology usually categorized as fintech. Concerns for financial stability, investor and consumer protection, or the prevention of money laundering or funding of terrorism hinge incrementally on including the new techniques to initiate financing relationships adequately in the regulatory framework.
This paper analyzes the German regulation of crowdinvesting and finds that it does not fully live up to the regulatory challenges posed by this novel form of digitized matching of supply and demand on capital markets. It should better reflect the key importance of crowdinvesting platforms, which may become critical providers of market infrastructure in the not too distant future. Moreover, platforms can play an important role in investor protection that cannot be performed by traditional disclosure regimes geared towards more seasoned issuers. Against this background, the creation of an exemption from the traditional prospectus regime seems to be a plausible policy choice. However, it needs to be complemented by an adequate regulatory stimulation of platforms’ role as gatekeepers.