Investing in college carries high returns but comes with considerable risk. Financial products like equity contracts can mitigate this risk, yet college is typically financed through non-dischargeable, government-backed student loans. This paper argues that adverse selection has unraveled private markets for college-financing contracts that mitigate risk. We use survey data on students’ expected post-college outcomes to estimate their knowledge about future outcomes and quantify the threat of adverse selection in markets for equity contracts and several state-contingent debt contracts. We find students hold significant private knowledge of their future earnings, academic persistence, employment, and loan repayment likelihood, beyond what is captured by observable characteristics. Our empirical results imply that a typical college-goer must expect to pay back $1.64 in present value for every $1 of equity financing to cover the financier’s costs of covering those who would adversely select their contract. We estimate that college-goers are not willing to accept these terms so that private markets unravel. Nonetheless, our framework quantifies significant welfare gains from government subsidies that would open up these missing markets and partially insure college-going risks.
more »
« less
Running on debt: Financing land protection with loans
New land protection is expensive, and many conservation NGOs rely on loans to help fund land acquisition in the short term. Conservation loans are offered by a range of philanthropic organizations that often allow much more flexible terms than traditional loans. Thus, conservation loans may behave differently from other types of loan. There are costs and benefits to relying on loan financing to fund land protection that organizations need to consider, but few data are available to inform such evaluations. Here, we focus on estimating the financial cost of these loans, by analyzing loans used to support land protection projects that were provided through an internal revolving fund at a large U.S. conservation NGO. We estimate loan financing cost through accrued interest and test deal‐level characteristics for their ability to explain or predict loan interest. We find that loan performance can be highly uncertain and costs can be substantial in relation to the total purchase price. An improved ability to estimate the overall cost of conservation loans upfront may determine just which conservation projects are prioritized for investment and avoid costly misallocations of conservation resources.
more » « less- NSF-PAR ID:
- 10370385
- Publisher / Repository:
- Wiley-Blackwell
- Date Published:
- Journal Name:
- Conservation Science and Practice
- Volume:
- 4
- Issue:
- 9
- ISSN:
- 2578-4854
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
More Like this
-
-
more » « less
Non-governmental organizations for environmental conservation have a significant interest in monitoring conservation-related media and getting timely updates about infrastructure construction projects as they may cause massive impact to key conservation areas. Such monitoring, however, is difficult and time-consuming. We introduce NewsPanda, a toolkit which automatically detects and analyzes online articles related to environmental conservation and infrastructure construction. We fine-tune a BERT-based model using active learning methods and noise correction algorithms to identify articles that are relevant to conservation and infrastructure construction. For the identified articles, we perform further analysis, extracting keywords and finding potentially related sources. NewsPanda has been successfully deployed by the World Wide Fund for Nature teams in the UK, India, and Nepal since February 2022. It currently monitors over 80,000 websites and 1,074 conservation sites across India and Nepal, saving more than 30 hours of human efforts weekly. We have now scaled it up to cover 60,000 conservation sites globally.
-
Crowd financing is a burgeoning phenomenon that promises to improve access to capital by enabling borrowers with limited financial opportunities to receive small contributions from individual lenders towards unsecured loan requests. Faced with information asymmetry about borrowers' credibility, individual lenders bear the entire loss in case of loan default. Predicting loan payment is therefore crucial for lenders and for the sustainability of these platforms. To this end, we examine whether the ''wisdom'' of the lending crowd can provide reliable decision support with respect to projects' long-term success. Using data from Prosper.com, we investigate the association between the dynamics of lending behaviour and successful loan payment through interpretable classification models. We find evidence for collective intelligence signals in lending behaviour and observe variability in crowd wisdom across loan categories. We find that the wisdom of the lending crowd is most prominent in the auto loan category, but it is statistically significant for all other categories except student debt. Our study contributes new insights on how signals deduced from lending behaviour can improve the efficiency of crowd financing thereby contributing to economic growth and societal development.more » « less
-
more » « less
The Pittman-Robertson Act of 1937 was a transformative piece of legislation for wildlife management and conservation in the United States, incentivizing the creation of state wildlife agencies and establishing funding mechanisms for these agencies. The legislation directs an excise tax on firearms, ammunition, and archery equipment to a fund to support wildlife restoration projects by state wildlife agencies. In 2021 alone, this generated more than $1 billion in project funds. Although commonly framed as a user pays model of conservation whereby hunters fund wildlife management, most of the excise taxes collected on firearms and ammunition are now associated with non-hunting uses. Despite this disconnect, many firearms industry groups continue to support and promote their relationship to Pittman-Robertson. Here, we examine the role of Pittman-Robertson in shaping the relationship between firearms and conservation and seek to understand how this relationship is reproduced. We examine this shifting relationship through an analysis of amendments to Pittman-Robertson since its creation and a discourse analysis of contemporary materials from web sites of firearms, hunting, shooting, and conservation organizations. Drawing on the concept of environmentality and diverse ecologies, we argue that Pittman-Robertson has contributed to the production of, and been re-shaped by, a distinct environmental actor: the eco-munitionary subject.
-
more » « less
Small‐to‐medium‐sized enterprises (SMEs), including many startup firms, need to manage interrelated flows of cash and inventories of goods. In this study, we model a firm that can finance its inventory (ordered or manufactured) with loans in order to meet random demand which in general may not be time stationary. The firm earns interest on its cash on hand and pays interest on its debt. The objective is to maximize the expected value of the firm's capital at the end of a finite planning horizon. The firm's state at the beginning of each period is characterized by the inventory level and the capital level measured in units of the product, whose sum represents the “net worth” of the firm. Our study shows that the optimal ordering policy is characterized by a pair of threshold parameters as follows. (i) If the net worth is less than the lower threshold, then the firm employs a base stock order up to the lower threshold. (ii) If the net worth is between the two thresholds, then the firm orders exactly as many units as it can afford, without borrowing. (iii) If the net worth is above the upper threshold, then the firm employs a base stock order up to the upper threshold. Further, upper and lower bounds for the threshold values are developed using two simple‐to‐compute myopic ordering policies which yield lower bounds for the value function. We also derive an upper bound for the value function by considering a sell‐back policy. Subsequently, it is shown that policies of similar structure are optimal when the loan and deposit interest rates are piecewise linear functions, when there is a maximal loan limit and when unsatisfied demand is backordered. Finally, further managerial insights are provided with extensive numerical studies.
