Current Research

Working Papers

Working Papers

The Price of Safety: The Evolution of Municipal Bond Insurance Value
(with Kimberly Cornaggia and Giang Nguyen)

Accepted October 2022 at Management Science
Draft left available here until in press

May 13, 2020 draft at SSRN
Hutchins Center at Brookings Institute Working Paper

Bloomberg article: "Cities are Buying Bond Insurance That May Be Giving Them Nothing"
by Martin Braun

We examine the benefits of bond insurance to taxpayers using comprehensive data over three decades. We employ multiple modelling approaches to account for the selection into insurance parametrically and non-parametrically. Controlling for fundamentals and the choice to insure, insurers with Aaa credit ratings provided valuable coverage in gross terms, on average, prior to 2008. After 2008, insurers were downgraded and municipalities systematically upgraded, shrinking their difference in ratings-based credit quality and thus diminishing the value of credit enhancement. However, average values belie significant heterogeneity. We find no evidence that insurance provided significant value, even in gross terms, to the highest-rated issuers even before 2008. In contrast, we find significant insurance value among lower-rated issuers over the entire period. We conclude that higher-rated communities historically subsidized those with weaker ratings. Cross-sectional results suggest that agency problems and conflicts of interest help explain this over-insurance phenomenon.

Opioid Abuse and Corporate Innovation
(with Kimberly Cornaggia, Kevin Pisciotta, and Zihan Ye)
August 10, 2022 draft at SSRN


We find that local opioid abuse reduces corporate innovation. Quantity and stock market value of patent output declines in affected areas. Analyses of local income, labor migration, and inventor departure from local firms indicate these results are driven by spillover effects of opioid abuse on non-users. Additional analyses indicate that our results reflect labor supply rather than product demand shocks. Consistent with this interpretation, we find that affected firms acquire external innovation to substitute lost internal productivity. Because corporate innovation is key for economic and employment growth, our results represent a previously unidentified long-lasting spillover effect of the opioid epidemic.