Underwater
The Effect of Federal Policies on Households’ Exposure to Climate Change Risk
Job Market Paper. [PDF]
Two government policies implicitly encourage homeownership in areas increasingly threatened by climate change. First, the government spends billions of dollars helping rebuild homes and infrastructure after major disasters. Second, government-sponsored enterprises, Fannie Mae and Freddie Mac, do not charge mortgage borrowers for location-specific climate risk. In this paper, I introduce climate risk into a canonical lifecycle model of consumption and housing choice to estimate how removing both distortions would affect the number of homeowners living in areas exposed to climate risk, specifically flood risk. I use Hurricane Sandy's landfall in New Jersey as a natural experiment to quantify the two distortions and discipline the model. My model predicts that jointly removing both distortions would have reduced the number of homes affected by Hurricane Sandy by 20%. I show that a vast majority of this reduction in the number of homeowners exposed to climate risk could have been achieved by taxing at-risk homeowners and charging them a flood risk premium as part of the mortgage, despite continuing public assistance after a disaster. This latter policy regime would have reduced residential losses from the storm by 30%, i.e., $2.3 billion.
FIASI-Gabelli Research Award, Honorary Mention, 2022.
Do firms that report more carbon emissions—particularly scope 3 emissions—face a higher cost of borrowing in credit markets? In this paper, we find that firms that disclose scope 3 emissions face a lower cost of borrowing in credit markets and estimate a scope 3 disclosure premium of -20 basis points on average. However, credit markets do not significantly discriminate the quantitative amount of reported scope 3 emissions despite penalizing scope 1 + 2 carbon generation. Is this trend because markets reward advertised rather than actual pollution reduction efforts—greenwashing—or because scope 3 data is not yet mature enough to provide reliable information? While the literature has documented evidence of investors rewarding greenwashing, we find substantial discrepancies in firms' scope 3 disclosures across time, regions, and sectors. We show that these discrepancies are mainly concentrated in downstream data. Based on these findings, we highlight possible areas of engagement between firms and investors or policymakers that would be beneficial to all stakeholders.
The Credit Surface
with John Geanakoplos. Working Paper; draft available upon request.
We develop a quantitative, policy-relevant tool—the credit surface—for tracking credit conditions in the housing sector. Given market expectations of growth in home prices, coupled with the default and prepayment rates for mortgages, the credit surface outputs the fair mortgage rate for a loan given the borrower's credit score and desired loan-to-value ratio at origination. Depending on the market environment, the credit surface flattens or tightens, indicating the phase of the leverage cycle the market currently is in. We generate the credit surface for each month between 2002 and 2010, demonstrating its evolution over the course of the boom and bust of the housing market in the U.S.
Diversifying Households’ Climate Risk with Leverage
with Chase Ross and Sharon Ross. Work in Progress.
Climate risk threatens to erode—or entirely destroy—home values, reducing homeowners' housing wealth. We show that household mortgage leverage has an overlooked benefit: it helps diversify climate risk. We present a simple model to show the conditions under which higher levels of equilibrium mortgage leverage increase aggregate consumption. The effect is particularly strong for people where housing wealth is a large share of their total wealth. We use property-level data to confirm the predictions of the model. We show that consumption of households with more mortgage leverage reduced their consumption less than their less-levered counterparts in the aftermath of the Midwest Floods of 2019.
The Effect of Banking Intermediation on Agricultural Outcomes
Evidence from Pakistan
with Faizaan Kisat. Work in Progress; field work completed October 2022. [Concept Note PDF]
This paper analyzes the impact of credit provision on farm profitability in emerging markets. Working with a local financial institution in Pakistan, we issue a credit facility to farmers that finances the purchase of all farm inputs during a cropping cycle. The loan is repaid using the funds generated at harvest, and farm output is sold to a pre-contracted bulk buyer. Our results will quantify the efficiency gains associated with reductions in credit and supply chain frictions in agriculture markets.
Highlighted at COP26 in Glasgow.