We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of financial frictions that make external financing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks....

We introduce a model of the banking sector that formally incorporate a buffer function of capital. Heterogeneous banks choose their portfolio risk, bank size, and capital holdings. Banks voluntarily hold equity when the buffer effect against the risk of default outweighs the cost advantages of...

We develop a financial-economic model for carbon pricing with an explicit representation of decision making under risk and uncertainty that is consistent with the Intergovernmental Panel on Climate Change’s sixth assessment report. We find that this approach provides economic support for the...

This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic and idiosyncratic risks and the nature of firm heterogeneity. The theoretical results obtained indicate that if firm-specific risk...

We examine heterogeneity in Norwegian households’ price responses to critical peak pricing (CPP) on electricity consumption, using a large-scale randomized controlled trial (RCT), high-frequency electricity data, and default enrollment. Increasing the grid transmission charge by 4,067%...

We analyse the drivers of European Power Exchange (EPEX) wholesale electricity prices between 2012 and early 2022 using machine learning. The agnostic random forest approach that we use is able to reduce in-sample root mean square errors (RMSEs) by around 50% when compared to a standard linear...

Under collusion, firms deviate from current profit maximization in anticipation of future rewards. As current profit maximization places little restrictions on firms’ pricing behaviour, collusive conduct is hard to infer. We show that bids from certain firms in the Colombian wholesale...