Month: February 2025

Johannes Gessner (University of Mannheim) will present “Shifting Gears: Environmental Regulation in the Car Industry and Technological Change Among Suppliers” on February 24th, 2025, at 11:00 AM, in room QA405.

Abstract:   

Decarbonizing industries to mitigate climate change requires technological change. Innovation by suppliers can play a crucial role in this transition, particularly when suppliers have expertise in zero-emission technologies.

In this paper, I study the effect of environmental regulation in a downstream industry on the innovation outcomes of suppliers in the context of the European CO2 emission standard for passenger cars. I construct a novel data set that links administrative data on car manufacturer compliance to supplier patent data using information on automotive supply chains. To identify the causal effect of changes in the stringency of the emission standard, I leverage the heterogeneous exposure of automotive suppliers to changes in the composition of the European car market in the aftermath of the 2015 Volkswagen diesel scandal. Exposure to more stringent environmental regulation increases innovation for zero-emission vehicle technologies among existing suppliers. In addition, the likelihood that car manufacturers form new supply chain links to firms with expertise in technologies to reduce vehicle emissions increases in response to more stringent environmental regulation. These results suggest that environmental regulation induces economically significant technology spillovers for regulated firms.

Markus Althanns (ETH Zurich) will present “Strategic Debt in a Monetary Economy” on February 21th, 2025, at 11:00 AM, in room QA406.

Abstract:   

We analyze in a general-equilibrium framework how producers improve their bargaining position vis-à-vis consumers through debt. By indebting themselves, producers compel consumers in bilateral matches to partially bear their debt burden. Consumers who attach little value to producers’ goods are not willing to do so, so that some bilateral matches fail to result in trade. Producers account for this extensive-margin channel, but only to the extent that it affects themselves; they ignore the negative effect on consumers. A Pigouvian tax on debt resolves this externality and, in its absence, monetary policy mitigates the externality by deviating from the Friedman rule. We calibrate the model to U.S. data and quantify optimal nominal interest rates at levels up to 0.5 percent. Although there is ample empirical evidence for the use of debt to leverage bargaining power, we show that there are better contracts to achieve this.