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Essays in Social Finance


This dissertation consists of three chapters centered on the idea of social finance. Social finance is a burgeoning field in finance that asks questions about how social motives and social concerns influence the actions of economic agents. Although economics and finance tend to model agents as purely self-interested, psychology and self-reflection are clear that humans value the concerns of others. Often such concerns are reflected in government policy. These policies can have interesting and often unintended effects.

In my first chapter "A Harming Hand: The Predatory Implications of Government Backed Student Loans," I consider the impact that government intervention in the student loan market has on student welfare showing that the welfare impact may not always be obvious. Although economic research is near unanimous finding that college is a good investment, there is growing concern about the impact that student debt and defaults have on student borrowers. Using the Department of Education’s College Scorecard, I document a new stylized fact about cross-sectional return heterogeneity across schools. Motivated by this fact, I then construct a basic informed lending model to study the optimal way to encourage greater college attendance via loan policies. I show that under a socially optimal guarantee scheme, a social planner will want to pool all students at a single, uniform rate. This optimal policy, however, will result in weak students accepting predatory offers.

In my second chapter, "Paying to Stay Motivated: The Impact of University Gym Fees on Student Usage," I ask if making gym memberships costly always discourage usage of gyms? In many health-related settings, it has been documented that consumers choose expensive sub-optimal contracts. It has been suggested that such choices are a result of projection bias. Using a natural experiment with gym membership fees, I show that costly gym membership fees, may actually serve to encourage some users to go to the gym more because of the sunk-cost fallacy. In effect, gym usage fees may act as a commitment device improving consumer welfare.

In my third and final chapter, "Looking Good: Charitable Giving as a Signaling Mechanism," I explore the motivations for corporations to engage in pro-social behavior (i.e. corporate social responsibility programs). Traditional research into corporate social responsibility (CSR) programs has argued that these CSR programs are a result of positive investment opportunities, agency costs, or investors’ pro-social motives. I, however, advance a new explanation: that CSR programs act as a signal of future firm strength. Using information on corporate donations, I show that firms who donate more perform better both in terms of their real performance and their stock returns. Both the investment hypothesis and my signaling hypothesis could plausibly explain such results. To differentiate between the two hypothesis, I examine the difference in giving and firm performance between firms with a short-term and a long-term focused CEO. I find that the relationship between giving and firm performance is much weaker in firms with a short-term CEO. Only my signaling hypothesis can account for this difference.

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