Flooded House or Underwater Mortgage? The Implications of Rising Climate Risk and Adaptation on Housing, Income, and Wealth 

Tinbergen Institute Discussion Paper TI 2023-014/IV, (available on SSRN).

Finalist, Young Economist Prize, European Central Bank (2024)

Best Student Paper Award, CEPR European Conference on Household Finance (2023)

Best Single-Authored Paper Award, European Sustainable Finance PhD Workshop (2023)

I study the implications of climate change and adaptation on housing, income, and wealth. I embed climate change in a redistributive growth model by introducing exposure of households and firms to extreme weather events, which damage their housing capital and physical capital, respectively. The analysis reveals that climate change is intrinsically redistributive. Low-income workers experience a relatively larger decline in income as climate-related damages reduce their productivity disproportionately. At the same time, the rate at which households with positive savings accumulate wealth rises. Importantly, I show that low-income households who are financially constrained have weaker incentives to adapt to climate change and their failure to reduce vulnerability to climatic impacts exacerbates wealth inequality. While houses exposed to climate risk face a price discount in the market, I demonstrate that the materialization of climate change risk increases house prices as habitat becomes reduced. This general equilibrium effect induces low-income households to allocate a larger fraction of their budget to housing as climatic impacts intensify, translating into a widening of the adaptation gap over time. 

Presentations: Massachusetts Institute of Technology  (Sustainable Urbanization Lab, virtual)  ·  CEPR-ESSEC-Luxembourg Conference on Sustainable Financial Intermediation  ·  ECB Sintra Forum on Central Banking (Young Economist Competition, poster)  ·  13th MoFiR Workshop on Banking (PhD session)  ·  NY Fed & NYU Summer Climate Finance Conference (poster)  ·  Imperial College Business School (Formal PhD Seminar)  ·  CEPR European Conference on Household Finance  ·  CEPR Paris Symposium (poster)  ·  9th IWH-Fin-Fire Workshop on Challenges to Financial Stability ·  Norges Bank Woman in Central Banking Research Workshop  ·  IPWSD at Columbia University in the City of New York · De Nederlandsche Bank · 1st European Sustainable Finance PhD Workshop  ·  12th Portuguese Finance Network Conference  ·  39th Conference of the French Finance Association (PhD workshop)  ·  Seminars on Environmental Economics and Management of Sustainability  · University van Amsterdam (Macro and International Economics Department, Finance Department)  ·  Nederlandse Economendag.

Covered in: VoxTalks Economics 

Funding the Fittest? Pricing Climate Transition Risk in the Corporate Bond Market 

with M.A. Boermans & M.J.G. Bun

DNB Working Paper No. 797 (available on SSRN).

We examine whether climate transition risk is priced in corporate bond markets and if investors value companies' green innovation efforts. Using confidential bond-level holdings data and global firm-level data on emissions and green innovation, we find a positive transition risk premium. This premium is smaller for emission-intensive firms that engage in green innovation, indicating that investors reward these efforts. Our analysis shows that European investors, particularly institutional investors, influence bond yield spreads related to climate transition risk. These investors have a higher demand for bonds from high-emission firms that engage in green innovation.

Presentations:  7th Annual GRASFI Conference  ·  ESCB  Research Cluster Climate Change*  ·  International Conference in Finance, Accounting and Banking*  ·  RCEA International Conference in Economics, Econometrics, and Finance*  ·  Robeco Asset Management  ·  Annual Conference of the International Association for Applied Econometrics*  ·  29th International Panel Data Conference*  ·  De Nederlandsche Bank  ·  Imperial College Business School  (Informal PhD Seminar)  ·  Vrije Universiteit Amsterdam (Finance Department)*   ·  University of Utrecht (School of Economics)*  ·  University van Amsterdam (Finance Department).

Covered in: SUERF Policy Brief  ·  E-Axes Forum Research Digest.

Political Economy of Climate Change Adaptation

with E.C. Perotti & F. Van der Ploeg. 

CEPR Discussion Paper DP18959  , CESifo Working Paper No. 10961, Tinbergen Institute Discussion Paper TI 2024-013/IV,  (available on SSRN).

We study the evolution of voter support for public adaptation when political preferences are shaped by rising climate risk and economic inequality. Political support for tax-funded intervention to preserve habitable land evolves over time when households differ in age, income and beliefs. Support for public adaptation is initially low, rising as climate risk increases. We show that the political equilibrium experiences a tipping point in response to habitat loss if beliefs are not too dispersed, leading to a shift towards a more active adaptation policy. A steady rise in inequality may induce a second tipping point, but the policy impact depends on the balance between the gap in income and beliefs. Overall, public intervention is undermined by a "tragedy of the horizon" effect as cohorts internalize only partially its long-term benefits for future generations. This prevents public adaptation from converging to the social optimum even when political support is highest. 

Presentations:  EJPE-CEPR Political Economy Conference  ·  CEPR Paris Symposium  ·  SURED Conference on Sustainable Resource Use and Economic Dynamics  ·  Seminars on Environmental Economics and Management of Sustainability  ·  Dutch Environmental and Resource Economics Day.

Covered in: VoxEU.

Home Improvements, Wealth Inequality and the Energy-Efficiency Paradox

with M.Droës.

Tinbergen Institute Discussion Paper TI 2024-026/IV,  (available on SSRN).

We explore the rate at which households go green and its effects on the distribution of wealth. Using unique Dutch data, we find that lower-income households are less likely to improve energy-efficiency. At the same time, higher-income households often sort in more energy-efficient homes. Energy savings amount to 17% of median net wealth, with sorting explaining 65% of this effect. Policies encouraging lower-income households to live in energy-efficient homes reduce wealth inequality but miss 83% of potential CO2 benefits, as higher-income households are more brown. Our analysis highlights a policy trade-off between reducing energy expenditures and effectively reducing CO2 emissions. 

Presentations: AREUEA-ASSA Annual Conference  ·  AREUEA International Conference  ·  30th ERES Annual Conference*  ·  De Nederlandsche Bank  ·  Dutch Ministry of Economic Affairs and Climate Policy (EZK)  ·  Dutch Ministry of the Interior and Kingdom Relations (BZK)*  ·  Royal Dutch Economic Association (KVS) New Paper Session.

Highlighted by: Maastricht Center for Real Estate ·   ESB  ·  Nieuwsbrief Milieu & Economie.

* presentation by co-author.

Header: Financial District, London. Photographed from Tower Bridge. January, 2024.