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Finance and Resource Allocation over Space and Time

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, Grand Ballroom A
Hosted By: American Finance Association
  • Chair: James Weston, Rice University

Real Effects of Price Transparency: Evidence from Steel Futures

Thorsten Martin
HEC Paris


I study the real effects of product price transparency on producers and their
customers. I use the introduction of steel futures at the London Metal Exchange
and the New York Mercantile Exchange in 2008 as a quasi-natural experiment. I
exploit the fact that the futures market did not become a new venue for buying
physical steel and did not change firms' hedging behavior significantly. Instead,
the creation of the futures market increased price transparency in the product
market. I compare steel products with futures traded on the exchanges to other
steel products in a difference-in-differences setting. I find that price transparency
reduces prices, producer surplus and customer material costs. Price transparency
further reduces input cost dispersion within narrowly defined customer industries
and increases the market share of low-cost producers and aggregate producer

The Retirement-Consumption Puzzle: New Evidence from Personal Finances

Arna Olafsson
Copenhagen Business School
Michaela Pagel
Columbia University


This paper uses a detailed panel of individual spending, income, account balances, and credit limits from a personal finance management software provider to investigate how expenditures, liquid savings, and consumer debt change around retirement. The longitudinal nature of our data allows us to estimate individual fixed-effects regressions and thereby control for all selection on time-invariant (un)observables. We provide new evidence on the retirement-consumption puzzle and on whether individuals save adequately for retirement. We find that, upon retirement, individuals reduce their spending in both work-related and leisure categories. However, we feel that it is difficult to tell conclusively whether expenses are work related or not, even with the best data. We thus look at household finances and find that individuals delever upon retirement by reducing consumer debt and increasing liquid savings. We argue that these findings are difficult to rationalize via, for example, work-related expenses. A rational agent would save before retirement because of the expected fall in income, and dissave after retirement, rather than the exact opposite.

Firm Networks in the Great Depression

Erik Loualiche
University of Minnesota
Chris Vickers
Auburn University
Nicolas Ziebarth
Auburn University


We study how firms allocate resources between their constituent establishments during the Great Depression. To do this, we construct an establishment-level dataset from the Census of Manufactures for a select set of industries and link the establishment into their parent companies. We examine the sensitivity of establishment-level employment to changes in local demand and financial conditions across single and multi-plant firms. We find that employment in establishments that are a part of a multi-plant firm is more highly correlated with demand than that of a single-plant. At the same time, employment at multi-plant firms is less correlated with financial conditions. We also find that shocks to establishment in one particular region spillover to plants that are part of the same firm but located in a different region. We develop a model of firm networks to interpret these results as evidence for the importance of internal firm networks in channeling resources across space in response to changes in local conditions. We also show how this model explains the empirical fact that employment at multiplant establishments and firms is more volatile than employment at single plant establishments (and firms).

Real Option Exercise: Empirical Evidence

Paul Decaire
University of Pennsylvania
Erik Gilje
University of Pennsylvania
Jerome Taillard
Babson College


We study when and why firms exercise real options. Using detailed project-level investment data we find that variables commonly associated with standard real option theories, such as volatility, are linked with exercise behavior. However, we find that additional factors are as important in explaining real option exercise decisions. Using localized exogenous variation in peer project exercise decisions, we find that adjacent exercise activity from peers leads firms to exercise real options sooner. We find evidence that this result is consistent with information externalities being important for exercise behavior.
Kumar Venkataraman
Southern Methodist University
Jawad Addoum
Cornell University
Holger Mueller
New York University
Evgeny Lyandres
Boston University
JEL Classifications
  • G1 - General Financial Markets