Research

Working papers

Natural Capital and Municipal Debt
with E. Fenichel, E. Gjerdseth, and A. Nakhmurina

A loss of natural capital is priced into an issuer’s bonds in the same way as a loss of produced or financial capital. We derive this prediction by extending a standard bond pricing condition to an issuer backed by both produced and natural capital. Losing natural capital leaves more debt per unit of capital, so investors demand a higher premium, but less so for issuers with diversified natural capital. We test these predictions using wildfires in the forested watersheds that supply drinking water in California. When a public water system draws all of its water from a single surface water watershed, a fire in that watershed in the 18 months before an issue increases the offering spread by 58 basis points, a 68 percent increase over comparable systems without a fire. Systems diversified across watersheds or into groundwater pay a smaller premium, consistent with the model predictions. The pricing condition converts the response of single-watershed systems into a forest value of at least $1,187 per acre.

Opening the Books: Per-Pupil Spending Disclosures and Resource Allocation
with R. Duguay, A. Nakhmurina, and T. Steffen

We examine whether measuring and publicly reporting how school districts divide spending across their schools changes inequality in resource allocation. We study a provision of the Every Student Succeeds Act (ESSA) that, beginning in school year 2018-19, requires each public school district to disclose how much it spends per pupil at each of its schools. Using a difference-in-differences design, we compare districts newly subject to the requirement with districts in states that already mandated similar reporting prior to ESSA. After the provision takes effect, spending per pupil becomes more equal across schools, with resources shifting from schools in wealthier neighborhoods toward schools in poorer ones (total district funding does not change). Consistent with stakeholder engagement affecting the reallocation, school board meetings attract more participants and feature more discussion of financial topics. Anecdotal evidence likewise shows stakeholders using the disclosures to advocate for changes in school funding. Overall, our evidence suggests that mandating more granular cost reporting changes resource allocation in the education sector.