Philip Zilke

Working Papers

"Auctions of green shares - How labels on government bonds can shift investors' portfolios in same direction"
To finance green projects, public authorities can issue bonds with a green label instead of using conventional debt instruments. Before institutional investors bid in an auction for shares of a green government bond, they can make a costly commitment by shifting their portfolio towards green investments. I present a model in which such commitment can work as a signal for a more aggressive bidding behavior which yields those investors a more favorable outcome from the share auction. This provides an explanation on how incentives for a portfolio shift can be generated simply by labeling government bonds. Moreover, I can show that green bonds achieve a weakly higher price than brown bonds given this set up. The effect is strict whenever investors actually make use of the commitment device in equilibrium. It turns out that this is more likely if all investors strategically reduce their demand when bidding in the auction. The main implication is that public authorities should put labels on their debt instruments whenever it is eligible. However, whether or not this drives the green transition by incentivizing investors to commit – and thus generate a higher price – depends on the equilibrium selection in the auction. This can explain why some green bonds are sold with a greenium and others – although similar – are not.

"Endogenous Consideration Sets and Price Competition"  with A. Atayev and J. Simon
In many markets, some consumers make a purchase without comparing prices. Their choice of firm from which to buy plays an important role, as it affects firms' pricing decisions. We propose a model of a duopoly market where firms have symmetric or asymmetric marginal costs and compete in prices, while consumers choose which firms to visit. We show the existence of an equilibrium where the firm with a lower marginal cost of production chooses a price from a price distribution that is a mean-preserving spread of that of the rival firm. These results provide an explanation for asymmetric pricing strategies observed in many retail markets.