Brigitte Roth Tran

The energy transition away from fossil fuels presents significant transition risks for communities historically built around the fossil fuel industry. This paper uses the decline in the Appalachian coal industry between 2011 and 2018 to understand how individuals are harmed by a reduction in local fossil fuel extraction activity. We use individual-level credit data and exogenous variation in coal demand from the electricity sector to identify how the coal mining industry’s decline affected the finances of Appalachian households. We find that the decline in demand for coal caused broad-based negative impacts, decreasing credit scores and increasing credit utilization, delinquencies, amounts in third party collections, bankruptcy rates, and the number of individuals with subprime status. These effects were broad based and cannot be explained solely by individuals who lost coal mining jobs. Individuals with the lowest pre-period credit scores were more likely to end up in financial distress and experienced a greater deterioration in credit scores. Quantile regressions show that the drop in credit scores from the coal decline was most pronounced between the 30th and 50th percentiles of the credit score distribution. Our results provide evidence that people living in fossil fuel extraction regions are likely to experience declines in financial well-being from the energy transition even if they do not directly work in the affected industry.

We present a framework to identify market responses to uncertainty faced by firms stemming from extreme weather events. Stock options of firms with establishments in a hurricane’s landfall region exhibit large, long-lasting implied volatility increases, reflecting significant uncertainty. Analyst calls show correspondingly persistent discussions of hurricane impacts on hit firms, which reveal business interruption and physical damages as dominant real channels. Comparing ex ante implied volatility to ex post realized volatility by analyzing volatility risk premia differences shows investors significantly underestimate extreme weather uncertainty until Hurricane Sandy. Despite constituting local, idiosyncratic volatility shocks, extreme weather events affect expected returns.

We study the dynamic responses of local economies after natural disasters in the U.S. using county-level data over the past four decades. We find disasters increase income total and per capita income over the longer run (8 years out). The effect is driven initially by an employment boost and in the longer run by higher wages. Over the longer run, house prices increase while population is roughly flat, especially in areas with inelastic housing supply, pointing to increases in housing demand, potentially reflecting increases in local amenities and/or productivity. The longer-run increase in income is largest for the most damaging disasters. It is especially apparent for hurricanes and tornados but absent for floods. The longer run increase in income, which has fallen over time, is independent of recent disaster experience. State level and spatial spillover analyses point to offsetting negative effects of local disasters on other counties within the region.

I apply a novel machine-learning based “weather index” method to daily store- level sales data for a national apparel and sporting goods brand to examine short-run responses to weather and long-run adaptation to climate. I find that even when considering potentially offsetting shifts of sales between outdoor and indoor stores, to the firm’s website, or over time, weather has significant persistent effects on sales. This suggests that weather may increase sales volatility as more severe weather shocks be- come more frequent under climate change. Consistent with adaptation to climate, I find that sensitivity of sales to weather decreases with historical experience for precipitation, snow, and cold weather events, but-surprisingly-not for extreme heat events. This suggests that adaptation may moderate some but not all of the adverse impacts of climate change on sales. Retailers can respond by adjusting their staffing, inventory, promotion events, compensation, and financial reporting.

How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? I offer the first model characterizing this type of investment decision. I introduce a strategy called “mission hedging,” where—in contrast to traditional socially responsible investing—foundations may benefit from skewing investment toward the objectionable firm in order to align funding availability with need. I characterize the trade-offs driving foundation investment decisions. By leveraging the idiosyncratic firm risk typically diversified away in profit-maximizing portfolios, foundations may find that bad actors provide good opportunities to hedge mission-specific risks.

Discounting plays a major role in the life cycle of environmental and natural resource policies. Evaluating centuries-scale problems like climate change with standard discount rates yields results that many find ethically unacceptable. Paradoxes abound. Low discount rates are urged for determining the net benefits of climate change, while households fail to undertake energy conservation actions that have payback periods of only a few years. Efforts to uncover discount rates from revealed and stated preferences suggest that a variety of confounding factors may be simultaneously in play. Common property resources provide an example of how market failures can lead to behavior consistent with extreme discounting that can be addressed through effective policy. Finally, politicians who make ultimate policy decisions may have incentives to act in accordance with discount rates not socially optimal.