CER-ETH Research Seminar, Spring Term 2023

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please contact Philippe Colo.

Speakers

Armin Schmutzler

Title: Providing Innovation Incentives for the Ecological Transition

Abstract: The transition to a greener economy requires substantial innovation effort. This paper therefore analyzes environmental innovations, product innovations and process innovations in a differentiated oligopoly with a green and a brown firm. It asks how prices, outputs, profits and emissions depend on these different types of innovations, and what the implications for innovation incentives are. The analysis is useful to understand whether and how policy should intervene to provide incentives for green innovation.

Andrea Vedolin

Title: Model Complexity, Expectations, and Asset Prices

Abstract: This paper analyzes how limits to the complexity of statistical models used by market participants can shape asset prices. We consider an economy in which the stochastic process that governs the evolution of economic variables may not have a simple representation, and yet, agents are only capable of entertaining statistical models with a certain level of complexity. As a result, they may end up with a lower-dimensional approximation that does not fully capture the intertemporal complexity of the true data-generating process. We first characterize the implications of the resulting departure from rational expectations and relate the extent of return and forecast-error predictability at various horizons to the complexity of agents’ models and the statistical properties of the underlying process. We then apply our framework to study violations of uncovered interest rate parity in foreign exchange markets. We find that constraints on the complexity of agents’ models can generate return predictability patterns that are simultaneously consistent with the well-known forward discount and predictability reversal puzzles.

Gerhard Sorger

Title: Climate policy under political pressure

Abstract:  The protection of the environment is a high priority for many governments these days. Yet, environmental policy implemented by governments tends to be less ambitious than their promised policy. The present paper uses a framework which has been developed by Harstad (2012, 2016) for the study of international environmental agreements to analyze the influence of political pressure on a government’s climate policies. The key assumption is that the government gives in to such pressure (at least to a certain extent) without changing its long-term goals. This assumption makes the government’s preferences dynamically inconsistent. We study the response of the government to a single or to multiple pressure groups and also illustrate how the intensity of political pressure can be endogenized.

Rafael Lalive

Title: canceled

Abstract: canceled

Sjak Smulders

Title: Self-fulfilling Prophecies in the Transition to Clean Technology

Abstract: Technological lock-in has been a standard explanation for the lack of clean innovation, but is hard to reconcile with forward-looking investors who anticipate the eventual switch to clean technologies. We provide an alternative explanation: technical change is the outcome of coordinated actions among innovators and self-fulfilling prophecies can lead to delayed low-carbon transition. We analyze a standard directed technical change model with clean and dirty goods. We find that when the two are good substitutes, two stable steady states can co-exist, each allowing multiple transitional paths. Optimal low carbon transition requires a coordination device in addition to a Pigouvian carbon tax.

Thorsten Hens

Title: Sustainable Investing in Imperfect Markets

Abstract: This paper analyses sustainable investing in terms of impact and ESG investing. Using a parsimonious general equilibrium model, we integrate the different effects of sustainable investing into welfare analysis. Given that the price for polluting the environment is too low, we show that impact investing can lead to a second-best solution. If at the margin the technology is ”clean” investment should be increased while a capital reduction is appropriate if at the margin the firm’s technology is ”dirty”. However, sustainable investing requires households to anticipate the firm’s pollution activity. Therefor we show how the same solution can be implemented with ESG investing in which the burden of knowledge lies on the rating agency. Finally, we indicate that the first-best solution can be achieved by sustainable consumption.

Han Ye

Title: tbd

Abstract: tbd