ABSTRACT Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors’ control rights over cash flows (“pledgeability”) varies with industry liquidity. The market allows firms take on more debt when they anticipate higher future liquidity. However, both high anticipated liquidity and the resulting high debt limit their incentives to enhance pledgeability. This has prolonged adverse effects in a downturn. Because these effects are hard to contract upon, higher anticipated liquidity can also reduce a firm's current access to finance.

ABSTRACT We analyze the likelihood of government bailouts of 450 politically connected firms from 35 countries during 1997–2002. Politically connected firms are significantly more likely to be bailed out than similar nonconnected firms. Additionally, politically connected firms are disproportionately more likely to be bailed out when the International Monetary Fund or the World Bank provides financial assistance to the firm's home government. Further, among bailed‐out firms, those that are politically connected exhibit significantly worse financial performance than their nonconnected peers at the time of and following the bailout. This evidence suggests that, at least in some countries, political connections influence the allocation of capital through the mechanism of financial assistance when connected companies confront economic distress.

Economics is characterized by well-developed predictive theories of human behavior. A wide variety of empirical tests of models based on those theories have been developed, as well as extensive and reliable data bases to test the theories. Thus, one can experiment with and simulate economic behavior. For these reasons, the conventional lecture-discussion format may be the least effective way to teach economics. Rather, the most effective teaching method may be as a laboratory science. We report here on two efforts to adapt economic instruction to a laboratory format. The purpose of adapting the lecture-laboratory format to economics is to permit a more active learning environment in which students can be meaningfully engaged by the material, with other students, and with the instructor. We report on two recent efforts to convert economics to a true, experimental, laboratory social science. The first, beginning in 1988, is a demonstration project conducted at Denison University for majors in economics. The second, beginning in 1993, is a true experiment conducted at Washington State University for all students taking introductory microand macroeconomics. I. The Demonstration Project for Economics Majors at Denison University

In a series of studies employing a variety of approaches, we have found that the potential impact of climate change on US agriculture is likely negative. Deschênes and Greenstone (2007) report dramatically different results based on regressions of agricultural profits and yields on weather variables. The divergence is explained by (1) missing and incorrect weather and climate data in their study; (2) their use of older climate change projections rather than the more recent and less optimistic projections from the Fourth Assessment Report; and (3) difficulties in their profit measure due to the confounding effects of storage.

We present a new estimator for causal effects with panel data that builds on insights behind the widely used difference-in-differences and synthetic control methods. Relative to these methods we find, both theoretically and empirically, that this “synthetic difference-in-differences” estimator has desirable robustness properties, and that it performs well in settings where the conventional estimators are commonly used in practice. We study the asymptotic behavior of the estimator when the systematic part of the outcome model includes latent unit factors interacted with latent time factors, and we present conditions for consistency and asymptotic normality. (JEL C23, H25, H71, I18, L66)

We study the effectiveness of pay-and-chase lawsuits and upfront regulations for combating health care fraud. Between 2003 and 2017, Medicare spent $7.7 billion on 37.5 million regularly scheduled ambulance rides for patients traveling to and from dialysis facilities even though many did not satisfy Medicare's criteria for receiving reimbursements. Using an identification strategy based on the staggered timing of regulations and lawsuits across the US, we find that adding a prior authorization requirement for ambulance reimbursements reduced spending much more than pursuing criminal and civil litigation did on their own. We find no evidence that prior authorization affected patients' health.

Views on the role played by banks in the economy have evolved greatly over the last 125 years, as have arguments on the need, as well as the best way, to regulate them. Some of the key insights in the debate have been published in the Journal of Political Economy. In what follows, we will outline the main contributions to the debate in recent years, with an emphasis on work done at the University of Chicago or published in the JPE. We want to emphasize work that has relevance today, but despite this caveat, we will probably end up doing injustice to work published long ago. We begin with a framework for organizing the theories of intermediation. We then draw out the implications for what the theories say about regulation and note that in many respects the motivation for regulation has been only loosely tied to the theory of intermediation. We close with some open questions for regulators and economists interested in banking. We do not survey the research that has followed up on work published in the JPE, nor will we attempt to provide a detailed overview of the entire academic literature on banking. For that, we refer the reader to the excellent work by Gorton and Winton (2003) and Freixas and Rochet (2008).

ABSTRACT We empirically analyze firm‐level uncertainty generated from extreme weather events, guided by a theoretical framework. Stock options of firms with establishments in a hurricane's (forecast) landfall region exhibit large implied volatility increases, reflecting significant uncertainty (before) after impact. Volatility risk premium dynamics reveal that investors underestimate such uncertainty. This underreaction diminishes for hurricanes after Sandy, a salient event that struck the U.S. financial center. Despite constituting idiosyncratic shocks, hurricanes affect hit firms' expected stock returns. Textual analysis of calls between firm management, analysts, and investors reveals that discussions about hurricane impacts remain elevated throughout the long‐lasting high‐uncertainty period after landfall.