Waterloo Research

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Now showing 1 - 20 of 3456

The price of carbonwashing: market responses to carbon disclosure controversies
(Emerald, 2026-07-01) ElAlfy, Amr; Nassar, Mohamed; Quigley, John; Tang, Leilei
Purpose: This study examines whether capital markets penalize firms for carbonwashing-related controversies and under what conditions such penalties occur. Specifically, it investigates how the visibility of carbonwashing incidents influences investor reactions to misleading or selective corporate disclosure of greenhouse gas (GHG) emissions. Design/methodology/approach: Using a dataset of climate-related controversies identified by RepRisk, the study analyzes short-term stock market reactions for S&P 500 firms over the period 2010–2023. A standard market-model event study is employed to estimate cumulative abnormal returns (CARs) over a [−2,+2] event window. The analysis is complemented by non-parametric tests and panel regressions with firm and time fixed effects. Grounded in signaling theory, corporate climate disclosures are conceptualized as signals of environmental commitment, while carbonwashing incidents are treated as negative signals that undermine signal credibility. Findings: The results show that capital markets do not uniformly penalize climate-related controversies. Negative stock price reactions are concentrated in carbonwashing incidents that receive substantial media attention. High-visibility GHG-related controversies are associated with significantly lower cumulative abnormal returns and greater downside risk, whereas low-visibility incidents generate muted market responses. These findings suggest that carbonwashing becomes financially material primarily when negative signals are widely disseminated and perceived as credible by investors. Although the analysis focuses on US-listed S&P 500 firms, the findings establish a baseline for how large-cap markets price carbonwashing. They also point to the European regulatory environment, particularly the mandatory assurance provisions under the corporate sustainability reporting directive (CSRD), as a natural setting for cross-jurisdictional replication, where stricter frameworks increase both the visibility and financial materiality of carbon disclosure practices. Research limitations/implications: The analysis focuses on short-term market reactions and relies on controversies identified in the RepRisk database, which may not capture all instances of misleading climate disclosure. Nevertheless, the findings highlight the importance of transparency and signal credibility in climate-related corporate communication. They also suggest that investor responses depend strongly on the information environment surrounding sustainability controversies. These implications are especially salient for European firms operating under enhanced disclosure and assurance requirements, where credibility risks are likely to be more tightly scrutinized. Originality/value: This study contributes to the sustainability and corporate strategy literature by showing that the financial consequences of carbonwashing depend on the visibility and credibility of negative signals rather than the mere existence of misleading climate communication. The results provide insights for managers, investors and policymakers seeking to strengthen the credibility of climate disclosure in capital markets.
Optimal timing of hazardous waste clean-up under an environmental bond and a strict liability rule
(University of Waterloo, 2018) Aghakazemjourabbaf, Sara; Insley, Margaret
Inadequate site clean-up and restoration by resource extraction firms leave a toxic legacy which must be dealt with by governments. This study compares the impacts of an environmental bond and a strict liability rule on a firm's incentives for cleaning up hazardous waste during resource extraction and upon termination. The firm's problem is modelled as a stochastic optimal control problem that results in a system of Hamilton Jacobi Bellman equations. The model is applied to a typical copper mine in Canada. The resource price is modelled as a stochastic differential equation, which is calibrated to copper futures prices using a Kalman filtering approach. A numerical solution is implemented to determine the optimal abatement and extraction rates as well as the critical levels of copper prices that would motivate a firm to clean up the accumulated waste under each policy. The paper demonstrates that an environmental bond provides strong waste abatement incentives, implying that the waste is more likely to be cleaned up under the bond than the liability. The strict liability rule imposes sunk costs on a firm upon termination which would motivate it to remain inactive as a way to escape clean-up costs. However, the environmental bond raises funds ex ante for future clean-up costs and thus encourages site restoration.
Spousal labour supply adjustments
(University of Waterloo, 2018-10) Lluis, Stephanie; McCall, Brian
In this paper, we study the impact of increased generosity in the unemployment insurance system on labour supply adjustments of a spouse following the job loss of his/her partner. We exploit the longitudinal household format of the Canadian Labour Force Survey following labour force transitions of each spouse over time and estimate spousal labour supply responses arising from an added worker effect, whereby spousal labour supply increases following the partner's job loss. We study whether the additional weeks of benefits offered by the Extended Weeks (EW) pilot, an initiative of the Employment Insurance program implemented in a subset of regions, had a differential impact on spousal labour supply. We use a difference-in-difference (DiD) approach to identify (separately from the added worker effect) a crowding-out effect of EI on the spousal labour supply resulting from the greater generosity of the added benefits weeks. Our fixed-effect estimation results show a statistically significant and substantial added worker effect for married women. Our DiD results show evidence of EI crowing-out the labour supply of wives whose spouse's job loss qualifies for EI benefits. The crowding-out effect of EI diminishes about 55% of the added worker effect.
Marital property laws and women's labour supply
(University of Waterloo, 2018) Lluis, Stephanie; Pan, Yazhuo (Annie)
In this paper we study whether and if so how changes in the marital property law following the amendment of the Civil Code of Quebec to improve economic equality between spouses impacted household labour supply and individuals' marital decisions. We exploit detailed information on individual labour market and marital status from the Labour Force Survey to analyze short-term changes in labour supply and marital decisions before and after the reforms in Quebec relative to other provinces that did not experience the changes in the marital property law over that time period. Investigating the labour supply and marital decisions' responses to a policy changing the distribution of resources between men and women may assist welfare agencies in the design of family reforms and more generally, help further reduce women's entry into poverty. Furthermore, analyzing whether the Quebec marital property law changed the demographic mix of couples may further inform policymaker about possible ways to improve gender equality.
Using distance functions to derive optimal progressive earnings tax and commodity tax structures
(University of Waterloo, 2018-12-11) Burbidge, John
Much of the research program in optimal taxation rests on the Atkinson-Stiglitz theorem (1976) — in the presence of optimal nonlinear earnings taxation, if leisure is weakly separable from goods, there is no role for differential commodity taxation. The nonlinear earnings tax in the theorem is one where, conditional on reported earnings, the government can choose tax paid and the marginal tax rate (mtr). The relationship between the average tax rate (atr) and mtr is unrestricted. Most governments operate progressive nonlinear tax systems in which, for each person paying taxes, mtr is not less than atr. I build on Deaton’s work on distance functions and taxation to show that the AS theorem fails in the presence of optimal progressive earnings taxation. Conditional on mtr ≥ atr, the search for optimal earnings tax structures cannot be undertaken without simultaneously studying optimal commodity taxation whether or not leisure is weakly separable from goods. The formal theory in the paper assumes two types. I also discuss a finite-type example of an optimal progressive earnings, and commodity, tax structure and present numerical examples with four types.
A comparative analysis of the labour market performance of university-educated immigrants in Australia, Canada, and the United States: Does policy matter?
(University of Waterloo, 2018-02) Clarke, Andrew; Ferrer, Ana; Skuterud, Mikal
We examine data from Australia, Canada, and the U.S. to inform the potential for immigrant screening policies to influence the labour market performance of skilled immigrants. Our estimates point to improvements in employment rates and weekly earnings of male university-educated immigrants in all three countries concomitant with skilled immigration policy reforms. Nonetheless, the gains are modest in comparison to a substantial and persistent performance advantage of U.S. skilled immigrants. Given that there is increasingly little to distinguish the skilled immigration policies of these countries, we interpret the U.S. advantage as primarily reflecting the relative positive selectivity of U.S. immigrants.
Strategic interactions and uncertainty in decisions to curb greenhouse gas emissions
(University of Waterloo, 2018-06-01) Insley, Margaret; Snoddon, Tracy; Forsyth, Peter A.
This paper examines the strategic interactions of two large regions making choices about greenhouse gas emissions in the face of rising global temperatures. Optimal decisions are modelled in a fully dynamic, closed loop Stackelberg pollution game. Global average temperature is modelled as a mean reverting stochastic process. A numerical solution of a coupled system of HJB equations is implemented. We explore the impact of temperature volatility and regional asymmetries on emissions, contrasting the outcomes from the Stackelberg game with the choices made by a social planner. When players are identical, a classic tragedy of the commons is demonstrated in which players in the game choose higher carbon emissions and have lower utility as compared to the outcome with a social planner. Over certain values of state variables, the tragedy of the commons is shown to be exacerbated by increased temperature volatility and regional asymmetries in climate damages. Asymmetries in environmental preferences can, under certain conditions, result in a green paradox whereby green sentiments in one region cause the other region to increase emissions. Interestingly, we also find that a contrary "green bandwagon" effect is possible. At high levels of the carbon stock, green preferences in one region can cause the other region to reduce emissions.
Climate games: Who's on first? What's on second?
(University of Waterloo, 2019-02-13) Insley, Margaret; Forsyth, Peter A.
We study four different climate change games and compare with the outcome of choices by a Social Planner. In a dynamic setting, two players choose levels of carbon emissions. Rising atmospheric carbon stocks increase average global temperature which damages player utilities. Temperature is modelled as a stochastic differential equation. We contrast the results of a Stackelberg game with a game in which both players as leaders (a Leader-Leader or Trumpian game). We also examine an Interleaved game where there is a significant time interval between player decisions. Finally we examine a game where a Nash equilibrium is chosen if it exists, and otherwise a Stackelberg game is played. One or both players may be better off in these alternative games compared to the Stackelberg game, depending on state variables. We conclude that it is important to consider alternate game structures in examining strategic interactions in pollution games. We also demonstrate that the Stackelberg game is the limit of the Interleaved game as the time between decisions goes to zero.
Don't hatch the messenger? On the desirability of restricting the political activity of bureaucrats
(University of Waterloo, 2018-03-19) Forand, Jean Guillaume; Ujhelyi, Gergely
Every country places restrictions on the political rights of government workers. This includes limitations on expressing political views and taking an active part in political campaigns. As such restrictions desirable? We present a formal welfare analysis of this question. Bureaucrats' political activities can be a valuable form of communication between voters and the government, but they may induce policy mistakes, and are susceptible to "noise" from partisan bureaucrats' innate desire for political expression. Signaling through bureaucrats is least effective when voters do no "trust" in this form of communication, or when politicians have strong control over bureaucrats. In these cases, banning political activities is general optimal.
Water innovation and water governance: Adaptive responses to regulatory change and extreme weather events
(University of Waterloo, 2018) Li, Hongxiu; Rus, Horatiu A.
This paper investigates the effect of federal and state level regulatory changes with respect to drinking water quality, water pollution and water quantity in the United States on the level of relevant technological innovation. We construct and use a unique dataset covering major amendments and additions to regulated contaminants lists as stipulated in the legislative acts most relevant to the policy area we study, along with a list of technological patents pertaining to water quality and quantity over a period of more than 30 years. We find in general the impact of water regulation on innovation to be both statistically and economically significant.
A study on volatility spurious almost integration effect: A threshold realized GARCH approach
(University of Waterloo, 2019) Xu, Dinghai
This paper investigates the "spurious almost integration" effect of volatility under a threshold GARCH structure with realized volatility measures. To closely examine the effect, the realized persistence of volatility is proposed to be used as a threshold trigger for volatility regimes. Under the threshold framework, general closed-form solutions of moment conditions are derived, which provide a convenient way to theoretically examine the "spurious almost integration" effect and its associated impacts. We find that introducing the volatility persistence-driven threshold can capture regime-specific characteristics well. It performs better than the traditional GARCH-type models in terms of both in-sample fitting and out-of-sample forecasting. Based on our Monte Carlo and empirical results, in general we find that overlooking the relatively low persistence regime(s) could lead to some misleading conclusions.
Bad jobs
(University of Waterloo, 2019-01) Chen, Yu; Doyle, Matthew; Honzalez, Francisco M.
We propose a definition of bad jobs and a competitive search model that addresses why workers seek such jobs, why employers create them and why market forces allow bad jobs to persist. The model features competitive search equilibria in which unemployed workers search for jobs that are unambiguously bad in a well defined sense. Concretely, these are jobs with suboptimal career prospects and jobs characterized by employers' underinvestment in labor. Our theory builds on the insight that when current employers can counter outside offers, potential employers who do not observe workers' productivity in their current job use wages as a signal of workers' willingness to switch jobs. In turn, this implies that the wage contracts that employers post in the market for unemployed workers not only direct job search but also signal career prospects. Bad jobs are a symptom of coordination failure stemming from a conflict between the signaling and allocative roles of wage contracts. Our analysis brings out potential difficulties inherent to the economics of bad jobs.
Political representation and the provision of public goods: Theory and evidence from Ethiopia
(University of Waterloo, 2019) Mergo, Teferi; Nimunbona, Alain-Desire; Rus, Horatiu A.
While the salience of ethnicity as a factor in ruling coalition formation in African politics has been documented in the literature, less is known about its impact on various ethnic groups' economic outcomes. We construct a simple political economy model to illustrate a way in which investments in public goods in ethnic-based polities may depend on the quality of the ethnic groups' political representation with the federal government. We then exploit a natural experiment that took place in Ethiopia, following the institution of an ethnic federalism in the country in 1995. Using a Difference-in-Difference estimation strategy on repeated cross-sectional data constructed from Censuses and Welfare Monitoring Surveys, we confirm that better political representation improves access to public goods. In Ethiopia's ethnic-based federation, the quality of political representation varies across ethnic regions depending on whether their populations belong or not to the ruling ethnic group at the federal level. Along this line, we find that access to public goods has improved faster in the politically dominant Tigray region than in the other regions. Similarly, the hierarchy of public goods access rates' in different ethnic regions is consistent with the proximity of the political elites from different regions to the center of political power in the country. We also find that the regional disparities in terms of access to public goods are more pronounced in rural areas than in urban areas.
Descriptive labour market outcomes of immigrant women across Europe
(University of Waterloo, 2020) Adsera, Alicia; Ferrer, Ana; Herranz, Virginia
We consider the job progression of immigrant women in five European countries: France, Italy, Spain, Sweden and the UK. We complement data from the European Labour Force Survey (2005-2015), with information about the skills contained in the jobs held by women, using data from the O*Net. In particular, we focus on analytical and strength skills in immigrant's jobs and compare them to those required by jobs held by similar native women. Even though immigrants experience upon arrival a gap in participation relative to the native born, they gradually increase participation during the first ten years spent in the country (approximately, 1% per year in Spain, Italy and the UK, and 2% and 4% per year in France and Sweden respectively). Our results reveal significant differences across countries of origin as well as differences within countries over the period of analysis. Recent immigrant women show relatively large gaps in the analytical skill content of the jobs they held relative to native-born women across our host countries. Further, with the exception of immigrants to Spain, they also work jobs with higher requirements of strength than their native-born counterparts do. Although educated immigrants show a different pattern in most countries (included Spain). We find differences within countries over the period of analysis that may be consistent with the variation of incentives to move depending on the business cycle at arrival - particularly given the meager opportunities in many destination countries during aftermath of the recent great recession.
The economics of water conservation regulations under uncertainty: An application to Alberta's Lower Athabasca River Region
(University of Waterloo, 2020-07-04) Huang, Yichun; Insley, Margaret
Large water demands by the mining industry are of increasing concern around the world. Command and control water regulations may be highly inefficient. The cost of a specific command and control water management policy is studied for an oil sands mining operation in Canada, where restrictions on water withdrawals vary with fluctuations in the river. A dynamic stochastic optimal control model is specified for a firm choosing production, water use, and the timing to build a water storage facility, under conditions of uncertain oil prices and uncertain water withdrawal limits. A numerical solution of an HJB equation is implemented to determine the difference in value and optimal controls for the oil-producing asset, with and without water restrictions. The cost of the restrictions is estimated to be quite small given the current reserve base and capacity of the industry. The marginal cost of tightening restrictions is non-monotonic with respect to price volatility.
Leaving you tailings behind: Environmental bonds, bankruptcy and waste cleanup
(University of Waterloo, 2020-06-18) Aghakazemjourabbaf, Sara; Insley, Margaret
The paper studies the impacts of the environmental bond, which fully covers waste cleanup costs, on a mining firm's optimal actions when bankruptcy may shift cleanup costs to the government. A firm's stochastic optimal control problem is described by an HJB equation with the resource price modelled as an Ito process. A theoretical result is derived, showing that when a firm does not have the option to declare bankruptcy, the bond has no impact on the optimal controls. In contrast, if a firm does have a bankruptcy option and if no environmental bond is required, the firm produces too much waste relative to a benchmark case, resulting in an efficiency loss and a cleanup liability imposed on government. In the presence of a bankruptcy option, a bond ensures that the firm acts optimally and no efficiency loss is imposed on society. A numerical solution of the HJB equation is implemented for a hypothetical copper mine and results are analyzed for two different models of bankruptcy risk.
Canadian stock market volatility under COVID-19
(University of Waterloo, 2020) Xu, Dinghai
This paper focuses on investigating the impacts of the novel coronavirus (COVID-19) on the Canadian stock market volatility from a time-varying parameter volatility model point of view.
Estimating dynamic spillover effects along multiple networks in a linear panel model
(University of Waterloo, 2022-11-17) Possnig, Clemens; Rotarescu, Andreea; Song, Kyungchul
Spillover of economic outcomes often arises over multiple networks, and distinguishing their separate roles is important in empirical research. For example, the direction of spillover between two groups (such as banks and industrial sectors linked in a bipartite graph) has important economic implications, and a researcher may want to learn which direction is supported in the data. For this, we need to have an empirical methodology that allows for both directions of spillover simultaneously. In this paper, we develop a dynamic linear panel model and asymptotic inference with large n and small T, where both directions of spillover are accommodated through multiple networks. Using the methodology developed here, we perform an empirical study of spillovers between bank weakness and zombie-firm congestion in industrial sectors, using firm-bank matched data from Spain between 2005 and 2012. Overall, we find that there is positive spillover in both directions between banks and sectors.
Descriptive labour market outcomes of immigrant women across Europe
(University of Waterloo, 2022) Adsera, Alicia; Ferrer, Ana; Herranz, Virginia
We consider the job progression of immigrant women in five European countries: France, Italy, Spain, Sweden and the UK. We complement data from the European Labour Force Survey (2005-2015), with information about the skills contained in the jobs held on by women, using data from the O*Net. In particular, we focus on analytical and strength skills in immigrant's jobs and compare them to those required by jobs held by similar native women. Even though immigrants experience upon arrival a gap in participation relative to the native born, they gradually increase participation during the first ten years spent in the country (approximately, 1% per year in Spain, Italy and the UK, and 2% and 4% per year in France and Sweden respectively). Our results reveal significant differences across countries of origin as well as differences within countries over the period of analysis. Recent immigrant women show relatively large gaps in the analytical skill content of the jobs they held relative to native-born women across our host countries. Further, with the exception of immigrants to pain, they also work jobs with higher requirements of strength than their native-born counterparts do. Although educated immigrants show a different pattern in most countries (included Spain). We find differences within countries over the period of analysis that may be consistent with the variation of incentives to move depending on the business cycle at arrival - particularly given the meager opportunities in many destination countries during aftermath of the recent great recession.
Immigrant gaps in parental time investments into children's human capital activities
(University of Waterloo, 2022) Ferrer, Ana; Mascella, Allison
Current and future well-being and economic prosperity of children depend in large part on the nuances of decisions made by parents with respect to familial resources, an important part of which regard the time spent in the company of children. We estimate differences in the time that immigrant and Canadian-born parents allocate to child-care activities relative to other activities using the time diaries from the General Social Survey. We find that mothers born abroad spend more time at work and less time in leisure but there is no significant difference in time devoted to household production or child service between them and Canadian-born mothers. Despite not finding differences by immigration status in the total care-time parents provide for their children, we do find significant differences - by immigrant status - in time specifically devoted to human capital investment activities with children: African, Asian, European and South-Central American mothers spend up to 30 more minutes daily in these activities than the Canadian born. We further assess the patterns of time use of second-generation young adults and find that they spend more time on education and homework compared to third generation or higher young adults. This supports a plausible effect of the time invested in children's human capital generating activities by immigrant parents on their Canadian-born children.

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