Nicholas Vreugdenhil

How efficiently do markets reallocate capital in booms and busts? Using a novel dataset of offshore drilling contracts I examine the role of matching in shaping industry reallocation. Oil companies search and match with capital (rigs) in a decentralized market. I find oil and gas booms increase the option value of searching which leads agents to avoid bad matches, reducing mismatch through a sorting effect. I provide an identification strategy to disentangle unobserved demand changes from the sorting effect. Estimating a model, I find substantial benefits to the sorting effect and an intermediary but that demand smoothing policies are ineffective.

We evaluate the efficiency of dynamic linked environmental regulation. Linked regulation allows inspectors who uncover violations at one plant to increase future enforcement at other plants that share a common owner. When compliance costs are correlated, regulators can then target scarce enforcement resources towards bad actors without inspecting everyone. We develop an empirical framework of dynamic moral hazard under linked regulation. Plants choose pollution mitigation efforts, while regulators selectively target inspections. Our framework allows for large portfolios of plants and for choices to be interdependent within the portfolio of plants and across time. We apply the framework to the Texas Commission on Environmental Quality who uses a scoring-based system of linked regulation. We evaluate this program using a novel panel of plant inspections, violations, pollution, and scores. We find that linked regulation performs substantially better than both unlinked regulation and untargeted regulation.

Supply-side climate policies — such as a drilling moratorium — aim to mitigate climate change by keeping fossil fuels ‘in the ground’. I examine how capital reallocation impedes the effectiveness of incomplete supply-side policies in the global offshore oil and gas industry. I develop a framework of a decentralized capital market which extends the location choice and dynamic matching literature to accommodate two-sided vertical heterogeneity. Applying the framework to a novel dataset of contracts and projects, I find that policy designs that do not account for capital reallocation are substantially less effective, and there are significant gains from a global agreement.

This paper investigates how endogenous rigidities inhibit efficient physical capital reallocation. We focus on the role of contract duration - a classic example of an adjustment rigidity. We argue that when agents choose to sign longer contracts in booms when asset markets are thin, they generate a contracting externality which further reduces available capacity and amplifies market thinness. This causes equilibrium contracts to be inefficiently long in booms and inhibits the adjustment of these markets to productivity shocks. We show evidence for these mechanisms in the market for containership leasing contracts. We provide a framework that captures the details of the market and illustrates the tradeoffs conceptually. Overall, the results have implications for policies in this industry like counter-cyclical subsidies, as well as the fragility of the supply-chain to shocks.