Small Aircraft Safety Inspections

• Welch, Ivo, 2026, “Regulatory Excess: The Case of Frequent FAA Inspection Mandates for Small Aircraft,” SSRN Working Paper no. 6066607, January.

Every year, the Federal Aviation Administration conducts mandatory inspections of around 170,000 small piston-driven airplanes at a cost of about $3,000 each, totaling $500 million. There are about 520 single-piston-engined airplane accidents annually, resulting in about 120 deaths. Most are caused by pilot error; only 26 of the deaths involve some sort of mechanical failure, according to the National Transportation Safety Board, which investigates airplane accidents.

This paper calculates that, assuming a value of a statistical life of $14 million, the benefits of inspection are about $360 million per year, much smaller than the cost of the inspections. The FAA should experiment with longer inspection cycles for these aircraft to find a more cost-effective regime.

Financial Crises

• Choi, Albert H., Jacob E. Gerszten, and Jeffery Y. Zhang, 2025, “Limits of Contingent Convertible Bonds (CoCos): Evidence from the Credit Suisse Collapse,” SSRN Working Paper no. 5696183, November.

After the financial crisis of 2007–2008, many financial economists recommended the use of catastrophe bonds in banks’ capital. (See Working Papers, Winter 2010–2011.) Catastrophe bonds (also known as “contingent convertibles bonds,” or “CoCos”) are bonds during normal times, with a maturity date, but they convert to equity if a bank’s financial condition deteriorates past a predefined threshold, and they can be written down to zero. Regulators encouraged banks to issue CoCos as liabilities on their balance sheets to increase their regulatory capital buffers. The goal was to improve the issuing banks’ stability in times of stress. In response, international banks have issued over $1 trillion in CoCos over the past 15 years.

In March 2023, Silicon Valley Bank (SVB) in California failed, and the shock spread to Switzerland and, in particular, to Credit Suisse. Even though Credit Suisse held billions of CoCos on its balance sheet prior to the panic, the Swiss government had to engineer an emergency bailout that ultimately resulted in its merging with UBS. CoCos were unable to save Credit Suisse from failure.

This paper asks two questions: First, were banks with more CoCos perceived by the market as safer? Second, how has the CoCos market evolved after the Credit Suisse failure?

The first question was examined by comparing abnormal returns of common stocks and probabilities of default (based on credit default swap spreads) with the use of CoCos. Holding higher levels of CoCos was associated with worse equity performance and greater probability of default. And the result was not caused by selection (that is, inherently weaker banks issuing more CoCos). In fact, prior to 2023, weaker banks—those with more volatile assets and greater leverage—issued fewer CoCos.

The second question was examined with hand-coded data on contractual terms. A bank’s experience during the SVB crisis does not predict adjustment of subsequent contract terms. But new issuers of CoCos are less liquid than their predecessors and concentrated in Continental Europe. Banks in the United Kingdom and China have largely stopped issuing CoCos.

Green Energy Subsidies

• Gaarder, Ingvil, Morten Grindaker, Tom G. Meling, et al., 2025, “Green Waste,” SSRN Working Paper no. 6048714, December.

Some economists argue that an optimal policy to address climate change would include both research-and-development subsidies to clean technologies and a carbon tax. The subsidies would be introduced first to incentivize the development of clean technology, and once such technology exists, the carbon tax would encourage its use. The idea is that the overall cost of the transition to a clean energy future would be lower with the combination of early subsidies and a later carbon tax than with only a carbon tax.

This paper examines green technology subsidy expenditures in Norway from 2012 to 2023. One would expect the Norwegian government to rank the clean technology proposals by expected emission reductions per subsidy cost, and direct the subsidies sequentially to the greatest-return-per-spending projects until the program’s budget was exhausted. The authors find that decision makers were able ex-ante to identify the projects with the highest ex-post carbon emission reductions, but they were unwilling to select those projects because of non-emission motives. Prediction errors (i.e., difference between actual and predicted emission reduction) played only a minor role in the bad allocations. Norway could have achieved the same level of carbon emission reductions at less than half the cost.