Current Research
Working Papers
Working Papers
The Price of Safety: The Evolution of Municipal Bond Insurance Value
(with Kimberly Cornaggia and Giang Nguyen)
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
Abstract
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.
(with Kimberly Cornaggia and Giang Nguyen)
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
Abstract
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.
Local Public Resources and Innovation: Evidence from the Opioid Crisis
(with Kimberly Cornaggia, Kevin Pisciotta, and Zihan Ye)
May 7, 2022 draft at SSRN
Abstract
Local opioid abuse reduces net worker inflows, taxable income, high skilled labor, cor- porate and aggregate innovation, new business creation, and job growth from start-ups in affected areas, holding socioeconomic conditions constant. Changes in house prices, parks and recreation expenditures, and dollar store establishments indicate a decline in local resources and amenities as a channel for these negative effects of opioid abuse on human capital and innovation. Our results are robust across diff-in-diff and IV identifi- cation strategies. We conclude that local public health problems drain local resources, drive out talent, and lead to long-term reductions in innovative capacity in affected communities.
(with Kimberly Cornaggia, Kevin Pisciotta, and Zihan Ye)
May 7, 2022 draft at SSRN
Abstract
Local opioid abuse reduces net worker inflows, taxable income, high skilled labor, cor- porate and aggregate innovation, new business creation, and job growth from start-ups in affected areas, holding socioeconomic conditions constant. Changes in house prices, parks and recreation expenditures, and dollar store establishments indicate a decline in local resources and amenities as a channel for these negative effects of opioid abuse on human capital and innovation. Our results are robust across diff-in-diff and IV identifi- cation strategies. We conclude that local public health problems drain local resources, drive out talent, and lead to long-term reductions in innovative capacity in affected communities.