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Divesting and voting - theoretical and experimental evidence of equilibrium implications

Alternative title: Selge eller stemme -teoretisk og eksperimentell studie av likevektseffekter

Awarded: NOK 0.56 mill.

The transition to the green economy is probably the biggest and biggest challenge of our time. Companies are responsible for large emissions, but at the same time new, green technology developed by companies is very important to solving the climate problems. This means that businesses will play a crucial role in the implementation of the green transition. Since it is the financial markets that supply capital to the companies, the financial markets can play such a role in steering the company in a green direction - but only if the owners want this. As the owner of capital, there are mainly two ways in which you can influence the companies. Either you can divest from companies you don't like and invest companies you like, or you can use your ownership power to influence the companies by voting in the general assembly. This project will examine how the effect of such measures is linked to what others are doing. If many sellers get out of a polluting business two things can happen. Either it will be more difficult for companies to raise capital or it will not be more difficult. It is not obvious how this affects other owners' decisions. If it becomes more difficult for polluting companies to obtain capital, one may find that the return on capital is higher for those who remain in the polluting company, which may reduce the willingness to sell. Correspondingly, it is also not obvious how the willingness to vote green in the general assembly depends on what others do. If few people vote for the green alternative, then one can vote green without any real consequences - either one way or the other. But if many people vote green, then it may be that the vote actually becomes decisive, and then you have to weigh the benefits of the company going green against any gains you miss out on. This project will use a combination of theoretical and experimental methods to investigate these questions.

I want to understand the equilibrium effects of divesting and shareholder voting. By equilibrium effects, I here refer to the effect of the strategies conditional on the consequences of the actions of other investors. The focus on equilibrium strategies and incentives is important for understanding the real-world consequences of the different strategies. I first construct a theoretical model to analyze the equilibrium effects of divesting and shareholder voting. I then test the predictions from the model using experimental survey evidence. More details are provided in the project description.

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