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The Future of Payment Transactions: The Convenience and Security of Mobile Payments

By Shane Cashin

Abstract
This study aims to evaluate the American consumers drive for payment choice. With cash, credit, and debit still covering most of the payment transactions that occur across the country every day, there has been a trend toward the use of mobile payments as the technology improves and more businesses have started to offer these capabilities. We use the Federal Reserve’s Survey of Consumers’ Use of Mobile Financial Services to analyze some of the most recent data pertaining to consumer payment preference in order to evaluate the importance of m-payment accessibility, convenience, comfort, and perceived level of security. Using a logistic regression analysis, this study finds that as one of the primary obstacles preventing the widespread adoption of mobile payments, security does play a major role in the consumers’ decision to use (or not use) mobile payments today.

Faculty Advisor: Grace Kim, PhD.

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The Effect of Sustainability Reporting on ESG Ratings

By Arthur Luetkemeyer

Abstract
Over the past decade the concept of Environmental, Social, and Governance (ESG) investing has
emerged to aid investors to maximize return on investments while simultaneously supporting
environmentally and socially friendly methods of production and operation. In this paper I
investigate the effect of the quality of sustainability reporting on ESG ratings. I utilize a sample
of 100 chemical companies with ESG ratings and sustainability disclosure indexes over a 14-
year time period (2007-2020) to analyze the short- and long run effects of sustainability reporting
on ESG ratings. Using OLS my regression results suggest that better overall ESG disclosure as
well as individual E, S, and G disclosure leads to worse ESG ratings in both the short run and the
long run.

Professor Christopher Timmins, Thesis Advisor
Professor Grace Kim, Faculty Advisor

JEL classification: M14, M40

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Economic Effects of the War in Donbas: Nightlights and the Ukrainian fight for freedom

By Riad Kanj

Abstract
The conflict in Eastern Ukraine began in 2014, and it has now turned into a full-scale
invasion. The separatist areas of Donetsk and Luhansk have remained isolated for the last eight
years while fighting between rebels and the Ukrainian government has continued at a low but
regular level since then. Previous studies analyze the impact of the war in Donbas on the
economic situation in the region, such as the industry and GRP growth. However, this research
uses data solely from the initial part of the conflict (2014-2016) and does not take into account the
severity of the fighting. By using both the DMSP-OLS and VIIRS data as an approximation of
economic activity in addition to the Uppsala Conflict Data Program (UCDP) casualty numbers,
the analysis explores the effects of violent conflict on economic activity over a longer period of
the Donbas war.
This paper uses both yearly and monthly satellite data in analyzing the general progression
of the conflict in addition to the monthly progression. Furthermore, nightlight data of Ukrainian
municipalities outside of Donbas are used in computing the Donbas region’s nightlight data across
several years. The UCDP data for civilian and battle-related casualties are used separately to show
the causal effects of the different fighting severities. A Two-Stage Least Squares regression is
used to see the effects of battle severity on economic outcomes.

Professor Charles Becker, Faculty Advisor
Professor Grace Kim, Faculty Advisor

JEL classification: F51; H56; O52; N44

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Generic Entry and The Effect on Prices in the Prescription Drug Market

By Sahana Giridharan

Abstract
Drug firms have utilized a variety of strategies that contribute to rising drug prices in the
U.S. for the last few years. Strategic entry timing and number of indications a drug is approved
might be two factors that contribute to this rise in prices. While there have been some studies
uncovering a positive relationship between generic entry and branded prices, there has been little
research done on the effects of generic entry on generic prices thus far. This work can impact
policy aimed at decreasing generic drug prices and increasing competition in the generic drug
market.
Oncology and inflammatory bowel disease (IBD) are two disease areas that have a high
price burden to patients in the U.S. today, hence using Medicare Part B Average Sales Price
(ASP) data, I analyze the effect of entry timing on the price of 24 drugs in these two indication
areas. Using the Drugs@FDA Database, I collect data on the FDA approval date of a drug, and
on the indications a drug is approved for. Utilizing OLS, my results suggest that later entry times
lead to lower drug prices, with a 1 year increase in entry time resulting in a 6.99% increase in
prices. Results also suggest that an increase of 1 in the number of indications a drug is approved
for leads to a 49.79% decrease in drug price. This could suggest that having existing generic
competitors in the pharmaceutical market decreases generic prices, and that number of
indications is a strong indicator of drug price.
If the current work is confirmed by future studies similar to this studying entry time and
price in the generic pharmaceutical market, it is possible that future drug policy should focus on
promoting competition within the pharmaceutical market to lower generic prices.

Professor Frank Sloan, Faculty Advisor
Professor Grace Kim, Faculty Advisor
Professor Kent Kimbrough, Faculty Advisor

JEL Classification: L11; I11; C3

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Economic Situations and Social Distance: Taxation and Donation

By Alexander Brandt

Abstract:

This experimental study evaluated the effects of two common economic situations –
taxation and donation – on the social distance between participants in the situations, an original
effect of interest that is the opposite of prior research. This study employed a novel survey
framework, in which subjects gave money to others in the economic situations and socially
judged recipients of their money. Findings mostly did not support predictions that the economic
situations would differently affect social distance, but the novel framework enabled an effective
test of the effect of economic situations on social distance and is a major contribution to the field.

Professor Rachel E. Kranton, Faculty Advisor
Professor Scott A. Huettel, Faculty Advisor
Professor Grace Kim, Seminar Advisor

JEL classification: C91; D64; D89; D90

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Forecasting the Effects of Battery Recycling on the Global Cobalt Market

by Elena Cavallero

This paper addresses existing concerns around a potential cobalt supply shortage driven by lithium-ion battery demand. Using econometric simultaneous equations, historical global cobalt supply and demand are estimated using data from 1981 to 2018. Based on the results of a Three-Stage Least Square estimation model of global supply and demand, this study forecasts global cobalt price and quantity in 2030. Additionally, a parametrization of battery recycling is added to study the effects of cobalt recovery on future market equilibrium. The results indicate that: 1) world GDP is a key determining driver of cobalt demand, 2) conflicts in the Democratic Republic of Congo, the world’s largest cobalt supplier, negatively impact global production, and 3) recycling lithium-ion batteries will increase global cobalt quantity supplied by 23% and decrease price by 60% in 2030 under the EU Green Deal regulations

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Advisors: Professor Brian Murray, Professor Grace Kim | JEL Codes: C30, Q31, Q55

Bang for Your (Green) Buck: The Effects of ESG Risk on US M&A Performance

by Richard Chen

Mergers & Acquisitions (M&A) is a fundamental corporate activity that has not received much attention from an environmental, social, and governance (ESG) perspective. In this paper, I analyze how buyer and target ESG risks affect US M&A performance in both the short and long run as measured by deal valuations and changes in buyer operating metrics, respectively. I utilize a sample of 341 transactions from 2007-2020 with a cumulative value over $3 trillion from Capital IQ where both the buyer and target have available ESG data provided by RepRisk. Utilizing OLS, my results suggest that higher ESG risk causes buyers to pay more and targets to receive less. In the long run, buyer ESG risk is an important determinant of performance. When examining the components of ESG, governance is the most consistently significant, followed by social, then environmental – though it becomes more significant in the long run. Additionally, all three components appear to have some non-linear impacts on M&A performance.

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Advisors: Professor Connel Fullenkamp, Professor Grace Kim | JEL Codes: G34, G14, M14

The Impact of Conflict on Economic Activity: Night Lights and the Bosnian Civil War

by Stephanie Dodd

The tendency of violent conflict to suppress economic activity is well documented in the civil war economic literature. However, differential consequences resulting from distinct characteristics of conflicts have not been rigorously studied. Utilizing new conflict data on the 1992-1995 Bosnian civil war from Becker, Devine, Dogo, and Margolin (2018) and DSMP-OLS night light data as a proxy for economic activity, this paper investigates the disparate economic impacts that different types of conflict have on Bosnia’s municipalities.

This investigation first uses data from other Yugoslavian countries to impute pre-war night light values for conflict-affected Bosnian municipalities. Next, a spatial autocorrelation model with fixed effects is used to determine if and how the occurrence of different types of violence vary in their implications for economic activity. This analysis finds that the five types of warfare identified in the context of the Bosnian Civil war have different impacts on night lights and economic activity.

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Advisors: Professor Charles Becker, Professor Grace Kim  | JEL Codes: F52, H56, O52

Myocardial Infarction, Health Behavior, and the Grossman Model

by Emma Mehlhop

This paper contributes an empirical test of Michael Grossman’s model of the demand for health and a novel application of the model to myocardial infarction (MI) incidence. Using data from the University of Michigan’s Health and Retirement Study (HRS), I test Grossman’s assumptions regarding the effects of hourly wage, sex, educational attainment, and age on health demand along with the effects of new variables describing health behaviors, whether or not a respondent is insured, and whether or not they are allowed sufficient paid sick leave. I use logistic regression to estimate health demand schedules using five different health demand indicators: exercise, doctor visits, drinking, smoking, and high BMI. I apply the Cox Proportional Hazard model to examine two equations for the marginal product of health investment both in terms of propensity to prevent death and to prevent MI, one of the leading causes of mortality in the United States. This study considers the effects of the aforementioned health demand indicators, among other factors, on the marginal product of health investment for the prevention of death compared to the prevention of MI. Additionally, there is significant evidence of a negative effect of health insurance on likelihood of exercising regularly, implying some effect of moral hazard on the health demand schedule.

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Advisors: Professor Charles Becker, Professor Grace Kim, Professor Frank Sloan | JEL Codes: I1, I10, I12

Informing the Investor: A Comparative Analysis of the Importance of Pre-Initial Public Offering (IPO) Information on Stock Performance

by Paul Snyder

This paper answers which available information about the company, macroeconomic and market environment, regulatory constraints, and offering before an IPO is most impactful on year-long buy-and-hold abnormal returns and how that changes across time while analyzing the IPO markets of 1999 and 2019. Data was gathered from predominantly company prospectuses and proprietary datasets to select a total of 419 IPOs across two samples and regress abnormal geometric returns against the aforementioned information using multivariate OLS regressions. There are a number of interesting findings. First, certain information or factors that act as signals of stock performance before an IPO that correlate with stock performance change across time. Second, there is evidence that companies abiding by more regulation pre-IPO tend to perform better on the stock market after the fact, particularly with the Sarbanes-Oxley and JOBS Acts. While the direction of causality is unknown, there is now a clear and quantified relationship between IPO regulation requirements and stock performance. Third, there is evidence that the IPO market has become more strong-form efficient when comparing 1999 to 2019.

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Advisors: Professor Edward Tower, Professor Grace Kim | JEL Codes: G1, G12, G14

Questions?

Undergraduate Program Assistant
Matthew Eggleston
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu