Conference Agenda

Using a large representative sample of individual credit bureau records, we document that personal financial distress increases a married couple’s probability of divorce by 4%-8%. Foreclosures strongly affect marital dissolution, whereas Chapter 13 bankruptcies, which protect debtors from foreclosure, have the opposite effect. These effects of foreclosure and bankruptcy protection on household stability are distinct from health- or employment-related shocks. We isolate plausibly exogenous variation in the probability of foreclosure by exploiting financial assistance programs that protect homeowners after natural disasters. Our findings highlight the role of financial stability and housing security as determinants of family structures and suggest that household finances have broad social consequences.

I study how bankruptcy law firm advertisements affect credit recovery of households

in financial distress. Exploiting the border discontinuity strategy associated with the

geographic unit in which local TV advertisements are sold, I empirically uncover

bankruptcy filings and credit recovery related to exogenous variations in bankruptcy

law firm advertisements. I first document a significant advertising effect on filing

rates and show that advertising-induced filers are similar to existing filers. I then find

a positive effect of advertisements on credit outcomes including credit score, new

homeownership, and foreclosure. I interpret these findings as evidence that lawyers

address information frictions in households’ assessment of the bankruptcy option.

In the United States, student debt currently represents the second largest component of consumer debt, just after mortgage loans. Repayment of those loans reduces disposable income early in the borrower's lifecycle, when marginal utility is particularly high, and limits their ability to build a buffer stock of wealth to insure against background risks. In this paper, we study alternative student debt contracts that offer a 10-year deferral period. Borrowers defer either principal payments only ("Principal Payment Deferral", PPD) or all payments ("Full Payment Deferral", FPD) with the missed interest payments added to the value of the debt outstanding. We first calibrate an equilibrium with the current contracts, and then solve for counterfactual equilibria with the PPD or FPD contracts. We find that both alternatives generate economically large welfare gains, which are robust to different assumptions about the behavior of the lenders and borrower preferences. We decompose the gains into the percentages resulting from loan repricing and from the deferral of debt repayments. We compare these alternative contracts with the changes to Income Driven Repayment Plans being proposed by the current U.S. administration and show that they dominate such proposals. Crucially, the PPD and FPD contracts deliver similar welfare gains to the debt relief program considered by the administration, with no impact on the government budget constraint.

We document substantial racial disparities in consumer bankruptcy outcomes and investigate the role of racial bias in contributing to these disparities. Using data on the near universe of US bankruptcy cases and a deep-learning imputed measures of race, we show that Black filers are 16 and 3 percentage points (pp) more likely to have their bankruptcy cases dismissed without any debt relief in Chapters 13 and 7, respectively. We uncover strong evidence of racial homophily in Chapter 13: Black filers are 7 pp more likely to be dismissed when randomly assigned to a White bankruptcy trustee. To interpret our findings, we develop a general decision model and new identification results relating homophily to bias. Our homophily approach is particularly useful in settings where traditional outcomes tests for bias are not feasible because the decision-maker’s objective is not well defined or the decision-relevant outcome is unobserved. Using this framework and our homophily estimate, we conclude that at least 37% of the 16 pp dismissal gap is due to either taste-based or inaccurate statistical racial discrimination.

Unlike labor income, human capital is inseparable from individuals and does not completely accrue to creditors, even at default. As a consequence, human capital investment should be more resilient to “debt overhang” than labor supply. We develop a dynamic model displaying this important difference. We find that while both labor supply and human capital investment are hump-shaped in leverage, human capital investment tails off less aggressively as leverage builds up. This is especially the case when human capital depreciation rates are lower. Importantly, because skills acquisition is only valuable when households expect to supply labor in the future, the anticipated greater reduction in labor supply due to debt overhang back-propagates into a reduction in skills acquisition ex ante. Using longitudinal data, we provide empirical support for the model.

Constrained, “hand-to-mouth,” households with zero liquid wealth are a central building block of modern heterogeneous-agent consumption models. We document empirically that many of these seemingly borrowing-constrained households actually revolve intermediate levels of high-interest credit card debt, meaning that they are not constrained at either the zero-liquid-wealth kink nor at their credit card borrowing limit. This finding presents a challenge: how can heterogeneous-agent models generate empirically realistic marginal propensities to consume without relying on borrowing-constrained households? We show that present bias induces households to revolve modest levels of credit card debt, but their indebted saving behavior still generates elevated MPCs. We then apply this insight to highlight key channels through which credit card borrowing reshapes households’ responses to fiscal and monetary policy.

Nondiscrimination regulations, administrative costs, and fairness considerations can constrain the within-firm distribution of benefits. Using novel job-level data on nonwage benefits, we find a larger firm component of the variation in benefits than wages. We show that the presence of high-wage colleagues (or high-wage peers in other local firms) positively predicts workers’ benefits, controlling for job characteristics including own wages. Firms with more generous benefits attract and retain more high-wage workers, but also reduce their reliance on low-wage workers more than low-benefit peers. Our results suggest that benefits disproportionately matter for worker-firm matching and, hence, compensation

inequality.

I find noticeable bunching in venture capital (VC)-backed company valuations at $1 billion, the minimum threshold to be so-called unicorn companies. Exploiting the practice that reported valuations include authorized but unissued shares, VC-backed companies strategically authorize more shares for future employee compensation (e.g., stock options) to achieve unicorn status. Various stakeholders of VC-backed companies, especially employees who face uncertainties and information asymmetry, interpret unicorn status as a positive signal. Contrary to employees’ interpretation, however, inflating valuations to achieve unicorn status lowers the expected value of their stock options. Providing simple stock option payoff diagrams to employees can reduce information frictions.

This paper presents new evidence on the impact of bank branch expansion and credit access on human capital outcomes for children. Using a regression discontinuity design, we study a branch authorization policy by the Reserve Bank of India that encouraged banks to open branches in underbanked districts, where the population-to-branch ratio exceeded the national average. Bank presence, bank lending, and household borrowing increased. We find significant improvements in test scores: children in underbanked districts scored 0.16–0.22 SD higher on reading and math. We document three mechanisms. First, we find evidence for a demand-side channel where parents spent more on their children’s education and children spent more time on homework. Second, we document supply-side impacts in improvements in the quantity and quality of schools and teachers. Third, we find support for a labor market channel, with shifts away from agricultural employment and towards employment in manufacturing, while self-employed individuals expanded their businesses.

Using plant-level data from the Census Bureau, we show that unionized plants have lower and less effective incentives in addition to paying higher wages and benefits. Unionized plants do not exhibit the same positive associations between incentives and investment and growth found in non-unionized plants. This effect holds among both non-managerial and managerial employees, although it has a more pronounced influence on the former group. Consequently, unionized plants experience higher closure rates, reduced investment, and slower employment growth. We also find significant spillover effects within the firm: partially unionized firms also offer higher wages and maintain weaker incentives in their non-unionized plants than their industry peers. These effects are economically significant and are half of our estimated reduction in incentives in unionized plants. This pattern aligns with the hypothesis that incentives in nonunionized plants create disutility for the median worker. Spillovers reduce employment and efficiency and make firms less attractive as potential targets, thus reducing the market’s effectiveness in allocating corporate assets. By leveraging recent changes in state-level right-to-work laws, we provide causal evidence that states that adopt such laws experience a boost in employment and investment.

Using IQ data from Danish military draft sessions, we document three results: First, employees in family firms have, on average, lower IQs than employees in nonfamily firms. This gap is higher for CEOs and for employees in high-skill job occupations. Second, the IQ gap is correlated with other well-established measures of talent. Third, a firm's average employee IQ is positively correlated with the quality of its management practices, which is significantly lower in family firms. We also document that family members at all levels have higher IQs than non-family members, but family leaders tend to hire employees with lower IQ relatively to non-family leaders. Our findings are consistent with the fact that the talent gap is rooted in family firms’ lower ability to identify and provide incentives for talented individuals.

I examine how population aging affects voter support for and the efficiency of public education provision. Analyzing a decade of school bond referendum data, I find that school districts with older populations are less likely to approve bond proposals to finance school investments. I leverage variations in historical fertility trends to separate the effect of aging-in-place from that of endogenous sorting. Comparing narrowly passed and failed referenda, I find that house prices do not appreciate after bond approvals in older-population districts, despite increased spending. These results align with generational political divisions over education investment but do not indicate inefficiency.

We construct an overlapping generations model of financial advisors, who have ethics, are hired competitively, interact with strategic investment funds, and are regulated. Misconduct is the outcome of the tension between the endogenous career concerns created by a competitive labour market rewarding good advisor behaviour and the strategic investment fund which can frustrate clients' inference by paying commissions to alter advisor incentives. We characterise market conditions leading to high misconduct. We offer a prediction as to the pattern of misconduct as wealth inequality increases. And we establish when, over the course of a career, financial advisors are most trustworthy.

We evaluate the effectiveness of portfolio mandates on equilibrium capital allocation. We show that the impact of mandates crucially depends on firms' demand elasticity of capital. In a production economy with constant returns to scale, firms' demand for capital is infinitely elastic, and mandates can significantly impact the allocation of capital across sectors despite having a negligible impact on the cost of capital. This is in sharp contrast to an endowment economy where inelastic demand for capital implies equilibrium price reactions to mandates, which significantly reduce their effectiveness. Within a canonical real-business-cycle model calibrated to match key asset-pricing and macroeconomic moments, we estimate that a significant portion of the mandate remains effective in shaping equilibrium capital allocation, even when there is little disparity in the cost of capital across sectors. Our analysis challenges the common practice of judging the effectiveness of portfolio mandates by their impact on firms' cost of capital.

Person-to-person charity has grown substantially in recent years, yet little is known about who benefits from it. This paper uses micro data on crowdfunding campaigns after a major wildfire to ask whether donors give according to the comparative need of beneficiaries. Linking to personal financial data and holding losses fixed, we find that beneficiaries with incomes above $150,000 receive 28% more support than beneficiaries with income below $75,000 and are more likely to have a campaign in the first place. We document that high-income beneficiaries possess several network advantages when soliciting crowdfunding. However, a networks mechanism does not fully explain why donors who give to multiple campaigns tend to give larger amounts to higher-income beneficiaries. These findings suggest that crowdfunded private charity may exacerbate income inequalities in the recovery process.

Using confidential information on banks’ portfolios, inaccessible to market participants, we show that banks that emphasize the environment in their disclosures extend a higher volume of credit to brown borrowers, without charging higher interest rates or shortening debt maturity. These results cannot be attributed to the financing of borrowers’ transition towards greener technologies and are robust to controlling for banks’ climate risk discussions. Examining the mechanisms behind the strategic disclosure choices, we highlight that banks are hesitant to sever ties with existing brown borrowers, especially if they exhibit financial underperformance.

This paper studies the impact of voluntary climate commitments by banks on their lending activity. We use administrative data on the universe of bank lending from 19 European countries. There is strong selection into commitments, with increased participation by the largest banks and banks with the most pre-existing exposure to high-polluting industries. Setting a commitment leads to a marked boost in a lender’s ESG rating. Lenders reduce credit in sectors they have targeted as high priority for decarbonization. However, climate-aligned banks do not change their lending or loan pricing differentially compared to banks without climate commitments, suggesting they are not actively divesting. We can reject that climate aligned lenders divest from mining firms by more than 0.36% and from firms in targeted sectors by more than 2.6%. Firm borrowers are no more likely to set climate targets after their lender sets a climate target, which casts doubt on active engagement by lenders. These results call into question the efficacy of voluntary commitments.

This paper investigates how competition affects banks’ adaptation to climate change. The analysis matches detailed supervisory data on home equity lines of credit with high resolution flood projections to identify climate risks. Following Hurricane Harvey, banks updated their internal risk models to better reflect flood risk projections, even in areas unaffected by the disaster. These updates are only detected in banks with exposures to the disaster, indicating heterogeneous bank learning. We use this heterogeneity to identify how bank adaptation is affected by competition. Exposed banks reduce lending to areas with higher flood risks but only in less competitive loan markets, suggesting that competition fosters risk-taking over risk mitigation. Additionally, banks are less likely to adapt in markets where competitors are also less likely to do so, suggesting a strategic complementarity in bank adaptation. More broadly, our paper sheds light on the role of competitive forces in how banks manage emerging risks.