Seminars by Natalia Fabra in Chicago

In the beginning of April, Prof. Natalia Fabra will give two seminars in Chicago:

• Northwestern University – Department of Economics, April 7, 2025, 3:30pm (info)
• University of Chicago – Institute for Climate and Sustainable Growth, April 8, 2025, 12:45pm (info)

She will be presenting her work on “The Costs of Counterparty Risk in Long-Term Contracts”

This paper investigates the implications of counterparty risk – stemming from potential defaults or renegotiations by buyers – on long-term contract markets. It develops a theoretical model highlighting how opportunistic buyer behavior leads to higher contract prices, defaults, and underinvestment – potentially leading to the collapse of the contract market. The paper also evaluates public policy interventions, including public support, financial guarantees, regulator-backed contracts, and collateral requirements. While these measures can reduce price-related inefficiencies and promote investment, they involve trade-offs such as moral hazard or reliance on costly public funds. These findings are particularly relevant for sectors with capital-intensive, long-lived assets exposed to price volatility, especially electricity markets, where underinvestment in renewable energy could delay the energy transition and hinder carbon-abatement goals.