Heterogeneous Shock Propagation in the Production Network (with Runpu Li)
ABSTRACT: Production in modern economies relies on complex supply-customer networks. Understanding the propagation of shocks through the supply-customer relationship is important for questions such as the origin of business cycles and macroeconomic fragility. Previous literature has identified large short-term shock propagation on average. In this paper, we try to understand how idiosyncratic shocks propagate differently through different supplier-customer relationships. Relationships are categorized into three types: COGS, CAPEX, and SG\&A. Using flooding in the United States as an exogenous shock, we find that customers are affected only by disruptions to COGS and CAPEX suppliers, while shocks to SG\&A suppliers do not propagate. This heterogeneity can be attributed to differences in supplier size, input specificity, and the costs of replacement. We then explore the implications of these findings for firms’ mitigation strategies and for the aggregate effects on the economy.
Environmental Tournaments As Political Incentives: Evidence from First Green Finance Pilot Zones in the World (with Dragon
Tang and Yupu Zhang) Draft
HKU-CBI Conference on the Real Effects of Green Bonds and ESG, EFA 2019, GRASFI 2020 at Columbia, 2021 FMA Virtual European Conference, 2021 Royal Economic Society Annual Meeting, 2022 CICF, 2022 CEA (UK/Europe) annual conference
ABSTRACT: In this paper, we provide empirical evidence on the incentive role of environmental tournaments. Exploiting the unique setting of the world's first nationwide green finance pilot program, we adopt a difference-in-difference design and document that being selected for green finance pilot zones (GFPZ) leads to a higher probability of government officials' promotion. Moreover, environmental tournaments exist where local government officials can boost career advancement opportunities with superior environmental performance. We find that non-pilot places make more efforts to improve environmental performance than pilot areas and expect to be included when the pilot program expands. These environmental tournament effects are more pronounced in non-pilot zone areas with more substantial career incentives (younger officials), fewer outside options (lower GDP growth and fewer social achievements), and greater enforcement abilities (more private firms). Overall, place-based green finance policies create direct political benefits and therefore impose environmental tournaments on other regions. Our paper also sheds light on a new environmental tournament channel for local government officials' career incentives.