Alexander H. von Hafften
Ph.D. Student in Economics and Finance at UW-Madison
Highlighted Research
The Consequences of Missing the Trees for the Forest - August 2025 - with Michael B. Nattinger - Paper
We document that the heterogeneity of carbon emission intensity across U.S. public firms is substantial and persistent. Using a tractable heterogeneous-firm GE model, we show that heterogeneity in carbon dependence is quantitatively relevant for determining the socially optimal carbon tax. With heterogeneity in this dimension and endogenous entry and exit, the firm distribution becomes endogenously greener in terms of production technology in response to carbon taxes - a composition effect which is absent from models without this heterogeneity. Omitting this channel, the model-implied Pigouvian tax which implements the socially optimal allocation is 50 percent higher than when the composition effect is present, suggesting that integrated assessment models abstracting from this form of heterogeneity may recommend carbon taxes that are larger than optimal. Nevertheless, we find that the welfare consequences of implementing the too-large carbon taxes are much smaller than the consequences of ignoring climate change altogether.
