ASU Scholarship Showcase

This article develops welfare-consistent measures of the employment effects of environmental regulation. Our analysis is based on a microeconomic model of how households with heterogeneous preferences and skills decide where to live and work. We use the model to examine how job loss and unemployment would affect workers in Northern California. Our stylized simulations produce earnings losses that are consistent with empirical evidence. They also produce two new insights. First, we find that earnings losses are sensitive to business cycle conditions. Second, we find that earnings losses may substantially understate welfare losses once we account for the fact that workers may have to commute further or live in a less desirable community after losing a job.

Using a natural experiment (Regulation SHO), we show that short selling pressure and consequent stock price behavior have a causal effect on managers’ voluntary disclosure choices. Specifically, we find that managers respond to a positive exogenous shock to short selling pressure and price sensitivity to bad news by reducing the precision of bad news forecasts. This finding on management forecasts appears to be generalizable to other corporate disclosures. In particular, we find that, in response to increased short selling pressure, managers also reduce the readability (or increase the fuzziness) of bad news annual reports. Overall, our results suggest that maintaining the current level of stock prices is an important consideration in managers’ strategic disclosure decisions.