Dante Gaviano (Faculty of Economics, University of Cambridge) will be presenting his work on “Unfinished Business: Weather Shocks, Contract Suspensions and Firm Dynamics”
About this session: Climate change has disruptive effects on economic activity. This paper focuses on one channel through which this disruption materialises: contract suspension. If adverse weather conditions force the interruption of construction work, contractual payments to the firms assigned to the project are delayed. The delay imposes several costs on these firms. They experience lower liquidity due to deferred payments, coupled with uncertainty regarding the duration of the suspension. Concurrently, firms cannot fully reduce their labour and capital costs, since they may have to suddenly resume work when the suspension is lifted. I quantify these costs using data on Italian firms and public contracts, obtained from a new database on the universe of public procurement contracts in the country. The suspension channel is isolated with a staggered difference-in-difference design matching similar firms. Suspensions lead to extensive financial damages, with sales of affected firms dropping on average by 30%, employment by 15.3%, and total assets by 18.5% in the years after a firm's first suspension. This contraction in firm operations arises both from the adverse liquidity effects of weather suspensions, and from their knock-on effects on firms' other contracts, which are also hit by delays.
When: Monday 4th of November
12.30-13.00 Light lunch and networking
13.00-14.00 Talk and Q&A.
Where: CRASSH meeting room (Alison Richards Building) on the Sidgwick site.
Lunch: A light lunch will be provided, but bring along your drink of choice!
Zoom: You can also join us virtually on Zoom.
The weekly climaTRACES workshops, organised by Kamiar Mohaddes and Henning Zschietzschmann, are attended by a diverse group of people from economics, geography, politics, engineering, business, earth sciences, natural sciences, and history, generating interdisciplinary discussion. One person leads the session, on either a paper they have written, a work in progress, or just an idea they have and would like feedback on. This is also an opportunity for people to find our more about the team on what climaTRACES have been up to and what future events and research projects are being developed.