Research

Published Papers

1. God is in the Rain: The Impact of Rainfall-Induced Early Social Distancing on Covid-19 Outbreaks (with Dr. Ajay Shenoy, Guanghong Xu, Rolly Kapoor, Haedong Rho, and Kinpritma Sangha), Journal of Health Economics, 2021

2. Government Expenditure in India: Composition and Multipliers (with Dr. Ashima Goyal), Journal of Quantitative Economics (Springer Publications), 2018

Working Papers

1. Information about Climate Transition Risk and Bank Lending [Job Market Paper] (SSRN link)

Abstract: Do banks price their borrowers' exposure to climate transition risk? I find that in the E.U., firms negatively exposed to climate transition risk face higher lending rates by banks specialized in their borrowers' industry. However, I also find evidence of lower lending rates to more exposed firms after an oil supply news shock relevant for energy-intensive firms, especially during periods of high aggregate financial stress. Interpreting bank specialization as a source of heterogeneity in costs of private information acquisition, I develop a bank lending model with competitive lending, costly information acquisition, and non-Bayesian belief updating. Because of screening, specialized banks can better distinguish between borrowers' risk exposure, resulting in relatively higher lending rates to more exposed firms. However, this interest rate differential decreases in favor of more exposed borrowers when banks underreact to relevant public information. This effect is more pronounced during periods of poor borrower quality or increased financial stress. These results imply that lowering banks' cost of acquiring firm-level transition-risk exposure information is crucial to reduce green firms' financing costs, even when there is high quality public information and communication about decarbonization.

2. How climate-awake are financial markets? (with Dr. Galina Hale) [Updated draft forthcoming]

Abstract: As physical manifestations of climate change become more apparent, are we to expect massive asset repricing and financial destabilization? The answer to this question crucially depends on whether climate risks are priced-in already in different asset classes. Climate-related events are unique in that they are drawn from a distribution that shifts and becomes more disperse over time along an uncertain trend, making belief formation a crucial component of asset pricing. We simulate the response of asset prices to changes in the arrival rate of climate-related disasters in the context of the rare events asset pricing framework based on Gabaix (2012), in which we allow for varying degrees of climate optimism and belief rigidity. We quantify ``fully priced in'' response in various structures of subjective belief formation. We survey the empirical literature on the pricing of physical climate risk in equity and fixed income markets to evaluate what belief formation structures may be consistent with assumption of fully priced-in beliefs. While there is no consensus in empirical literature, our preliminary results show that in recent years, asset price responses to disasters documented in the literature are more consistent with low climate optimism and relatively low belief rigidity.

3. How much is a formal job worth? Evidence from Mexico (with Dr. Brenda Samaniego de la Parra) [Updated draft forthcoming]

Abstract: We estimate the value of a formal job in Mexico. For the median household, the value ranges from MXN\$610 and MXN\$860 pesos (USD\$30-42) per month. This valuation encompasses the various social benefits available to formal employees, differences in job stability and career prospects, and any other attributes that make a formal job desirable. We obtain this estimate using a partial equilibrium model of joint labor supply with informal and formal contracts and search frictions estimated using simulated method of moments. We validate our structural estimates for the value of a formal job using an employer-employee-household matched panel dataset and exogenous variation in access to a formal job from over 300,000 work-site inspections. Model and reduced-form approaches yield consistent changes in reservation wages of a spouse after a change in their partner's formal job probability and similar values of a formal job based on compensating income differential estimates. We find substantial heterogeneity in the value of formal employment across income deciles.

Work in Progress

1. Firm Emissions and Credit Allocation (with Dr. Galina Hale, Dr. Grace Weishi Gu, and Jinhong Wu) [Draft available upon request]

Abstract: Do banks help or hamper green transition? To answer this question, we analyze the dynamics of bank lending to firms in the US, EU, and separately Denmark in relation to the borrowers' emissions of CO2. We evaluate allocation of bank loans across industries and within industries across firms, allowing for heterogeneity of firms emissions and changes in these emissions. To facilitate green transition, bank lending needs to flow to greener and greening firms, but not out of high-emission industries that need funding to transition to cleaner production methods. Using syndicated loan data we find that for US borrowers, bank lending was likely hampering green transition prior to 2016, while in the EU bank lending facilitates it. Zooming on the Denmark, for which we have more detailed data, we find that reallocation of funds to greening firms is to a large extent a byproduct of the industry becoming more green. Consistent with previous findings, we do not find any substantial impact of Net Zero Banking Alliance (NZBA) membership on banks' credit reallocation to greener firms or industries.

2. Climate Adaptation Gap: Socioeconomic Determinants of Household Climate Preparedness (with Dr. Galina Hale and Dr. Ted Liu) [Draft available upon request]

Abstract: We examine key socioeconomic factors that influence climate resilience efforts of households. Combining FEMA's National Household Survey with other data sources, we analyze how access to information, prior experience with disasters, financial stability, and insurance availability affect household preparedness levels. We find that access to information about disaster preparedness, personal disaster experience, and access to homeowner/renter insurance and flood insurance are associated with higher subjective confidence in preparedness and the likelihood of taking resilience actions, including building a financial buffer for emergency events. We also find evidence for public climate resilience projects associated with more resilience actions for middle-income individuals, highlighting the interplay between ex-ante public adaptation and resilience investments and private adaptation behavior. We supplement this empirical analysis with a qualitative study involving nine community organizations in California. Our findings underscore the importance of targeted financial incentives and policy interventions that support rebuilding and resilience among vulnerable populations.

3. Large disasters and changes in climate risk perceptions: Evidence from the United States

Abstract: This paper examines the nature of belief updates about individuals' exposure to damages from climate change. I use the Yale Climate Beliefs survey (aggregated at the county-level) on beliefs about the potential damages from climate risk and evaluate how the survey responses change at the county level after a 'billion-dollar' disaster in the state. Controlling for county demographics, income, educational attainment levels, political affiliation, and long-term temperature and precipitation anomalies, I find evidence for prior conformity. In counties with a high average risk perception, a state-level large disaster is associated with a higher risk perception. However, the post-disaster beliefs are still strongly anchored to those recorded a decade before the disaster occurred. The relevance of large disasters in subjective expectation formation is further indicated by the evidence that monetary damages from crop and property loss are not strongly associated with belief updates. These results highlight the information channels that individuals pay attention to while forming expectations about climate change, which has important implications for household adaptation to climate risks.

4. Currency Risk and Global Banks (with Dr. Grace Weishi Gu and Dr. Isha Agarwal)

5. Political Misallocation of Electricity in India (with Dr. Meera Mahadevan and Dr. Ajay Shenoy)