This paper presents evidence on the long-run trends in U. S. regional specialization and localization and examines which model of regional specialization is most consistent with the data. Regional specialization in the United States rose substantially between 1860 and the turn of the twentieth century, flattened out during the interwar years, and then fell substantially and continuously since the 1930s. The analysis of the long-run trends in U. S. regional specialization and localization supports explanations based on production scale economies and the Heckscher-Ohlin model but is inconsistent with explanations based on external economies.

This article investigates the impact of political uncertainty on contractual lending terms using a large sample of syndicated loans and a within-firm estimation approach to achieve identification. Firms pay 7 basis points (bps) more on loans originated when their lenders are undergoing an election relative to when their lenders are not undergoing an election. Lenders from less financially developed countries are more likely to pass political uncertainty costs to borrowers. Consistent with electoral uncertainty driving this premium, the most contested elections have the largest impact (17 bps). Overall, political uncertainty leads to a tangible increase in firms’ financing costs.

We estimate the stock’s likelihood of extreme returns by measuring the extent to which the stock’s trades are correlated with market-wide and industry-wide trades during normal times, referred to as herding. We find that stocks whose trades herd most with aggregate-level trades experience most negative (positive) returns during market crashes (booms). While herding generates extreme returns in both sides, investors appear to demand compensation for the possibility of extreme low returns. This is the case even when we control for standard asset pricing variables and other tail risk proxies.

Abstract We study the role of public risk-sharing in markets where firms face substantial cost uncertainty, focusing on public reinsurance in health insurance. We develop a model where insurers internalize cost uncertainty through risk charges that raise effective marginal costs and create a role for reinsurance. Public reinsurance lowers both expected costs and cost volatility, particularly for smaller insurers, reducing prices and enhancing competition. Using an event study of staggered state-level reinsurance programs, we show that public reinsurance leads insurers to lower prices and private reinsurance purchases, benefiting financially constrained insurers the most. Structural estimates indicate that risk charges account for a substantial share of the premium-cost wedge and highlight public reinsurance’s comparative advantage over premium subsidies by providing risk protection and enhancing competition. Our results underscore the importance of accounting for firms’ risk exposure in policy design and provide a general framework for understanding public risk-sharing policies.

We measure a stock’s exposure to fire sale risk through its ownership links to mutual funds that anticipate significant outflows during periods of systematic outflows from the fund industry. We find that stocks with higher exposure to this risk earn higher average returns: a portfolio that buys (shorts) stocks with the highest (lowest) exposure outperforms by 3-7% annually. Our findings cannot be explained by several known determinants of average returns and support the ex-ante pricing of the risk of fire sales. We conclude that stocks’ exposures to risks inherited from the constraints of shareholders have important implications for stock prices.

Using financial account data linking small businesses to their owner households, we examine how business owners’ consumption responded to changes in business revenues during the COVID-19 crisis. In the first two months following the National Emergency, business revenues declined by 40 percent, largely driven by national factors rather than local infection rates or policies. However, the pass-through of revenue losses to owner consumption was limited: each dollar of revenue loss resulted in only a 1.6-cent decline in consumption. This muted pass-through persisted through 2021, even after the introduction of COVID-19 vaccines. Our findings suggest that federal subsidies and pandemic-induced reductions in spending opportunities explain the limited impact.

Performance share plans are an increasingly important component of executive compensation. They are equity-based, long-term incentive plans where the number of shares to be awarded is a quasi-linear function of a performance result over a fixed time period. We derive closed-form formulas for the value of a performance share plan when the performance measure is: (1) a non-traded measure following an Arithmetic Brownian Motion (e.g., earnings per share), (2) a non-traded measure following a Geometric Brownian Motion (e.g., revenue), or (3) a rank-order tournament of traded asset returns that are following Arithmetic Brownian Motions (e.g., percentile of ranked stock returns). Then we empirically test our valuation formulas. We find that our valuation formulas are more accurate for performance share plans based on earnings per share when forecasting using analyst consensus prior to the grant date. We also find that the efficiency of our valuation model greatly depends on the method used to forecast future firm performance. The policy implication is that FASB should consider requiring that grant date fair value be estimated using valuation formulas such as ours.

The efficiency of federal lending guarantees depends on whether guarantees increase lending supply or simply act as a subsidy to lenders. We use notches in the guarantee rate schedule for Small Business Administration (SBA) loans to estimate the elasticity of bank lending volume to loan guarantees. We show significant bunching in the loan distribution on the side of the size threshold that carries a more generous loan guarantee. The excess mass implies that increasing guarantee generosity by one percentage point of loan principal would increase per-loan lending volume by $19,000. Excess mass increases in periods with guarantee generosity, and placebo results indicate that the effect disappears when the guarantee notch is eliminated.