Today, Europe faces a “crisis of values”. This crisis is related to the numerous challenges the European Union (“EU”) has faced in recent years – such as the sovereign debt crisis, the security crisis linked to the threat of terrorism, and the migration crisis. It has been characterized by a systemic deterioration in certain Member States of the EU’s founding values, such as democracy, the rule of law and the protection of fundamental rights. In particular, two Member States – Hungary and Poland – are experiencing a significant decline in the rule of law, which has involved the establishment of electoral autocracies that seek to undermine the limits on the exercise of executive power in order to maintain the dominant political party in power in the long term. Faced with the ineffectiveness of the political mechanisms intended to protect the rule of law in its Member States, the EU has developed a new strategy based on judicial and techno-managerial mechanisms. On the one hand, a number of preliminary references and infringement procedures that have been referred to the Court of Justice of the EU have found serious rule of law breaches in Hungary and Poland. Yet on the other hand, the EU has relied on instruments that were not specifically designed nor envisioned to protect the rule of law, such as the European Semester, the European Structural and Investment Funds, and the protection of EU’s financial interests. These mechanisms mainly pertain to the Economic and Monetary Union, cohesion policy and European fiscal policy, and rely on techno-managerial control mechanisms (indicators and scoreboards, benchmarking, peer reviews, etc.). While this new approach is likely to respond to criticisms regarding the lack of effectiveness of the Union's protection of the rule of law, it also raises some concerns. Firstly, the use of techno-managerial mechanisms is likely to undermine the constitutional balance of the Union by favouring, in particular, a management of the crisis of values by the European executive power and a marginalisation of parliamentary assemblies. Secondly, this new approach by the European Union could have the consequence that only those dimensions of the rule of law linked to economic and budgetary considerations will be effectively protected, to the detriment of other dimensions such as the rights of minorities, and thus, promote a conception of the rule of law that is not in compliance with international standards, such as those stemming from the Council of Europe. Using a pragmatic approach combined with an instrument-based approach and inductive reasoning, the MEDROI research project will critically analyse this new strategy. This has threefold-objective: (i) identify the techno-managerial control mechanisms mobilised by the EU alongside their effectiveness; (ii) analyse the consequences of this new approach for the protection of the rule of law within the EU; and (iii) assess the compatibility of this new approach by the EU with international standards for the protection of the rule of law. At the end of the two years covered by the project, MEDROI will mainly make it possible to identify the conception of the rule of law that is effectively produced by the EU through its new strategy, and to compare it with European and international standards for the protection of the rule of law; to assess the effectiveness of the protection of the rule of law in the EU; and to propose credible solutions to strengthen the protection of the rule of law in EU Member States.

The project "Financial Infrastructure: Risks and Regulation" aims at studying the new regulatory framework in the organization of exchanges between financial institutions, called financial infrastructure. Following the financial crisis of 2008, major reforms of the financial market infrastructure have been undertaken worldwide. The goal of these reforms, only partially implemented, is to enhance the stability of the financial system, thereby ensuring a better financing of the economies and preventing taxpayers from paying for the failure of financial institutions. Our main objective is to assess the effectiveness of these regulatory measures on the risk of the financial system. The G20 in Pittsburgh in 2009 have been pushing for profound changes in the organization of exchanges to correct two shortcomings that might have explained the amplitude of the crisis: first, the exchanges of non-standard assets, such as sub-primes, from the United States to most Western countries through unidentified chains of intermediaries (the so-called shadow banking); second, the complexity and opacity of contracts linking institutions, as those of Lehman Brothers. To limit and better control these arrangements, regulators have required the use of Central Counter-Parties (CCP) for most transactions involving derivative securities, and the mandatory report of all trades on derivatives through companies called Trade Repositories (TRs). Central counter-parties are thus called to play a crucial role in preventing market disruptions such as Lehman Brothers. Though, a new risk arises: all members of a Central counter-party are exposed to its failure, which could have dramatic effects on markets and macroeconomic stability. While the studies on exchanges are vast, central counter-parties have so far received very limited attention and important aspects of the regulation are still under discussion. Our project aims to be a significant step in a comprehensive analysis of the impact of the CCPs on the stability of the financial markets and ultimately on the financing of the economy. To achieve our objectives, we need to make progress on three intertwined topics on the financial institutions and infrastructures: their regulation, their strategic behaviours and the systemic risk these generate. To this end, the project is divided into three parts, which study respectively the management of risks by a CCP, the impact of CCPs on the financial institutions and trades and the competition and interdependencies between CCPs and their regulators. We expect our project to help to design resilient institutions and infrastructures, to promote research in financial economics, and to make accessible to a large audience the functioning of how the financial institutions operate to get a better understanding of the risks they cover and generate. The project brings together researchers in finance and economics, with both empirical and theoretical expertise.

We study the role that investors and financial intermediaries can play in tackling the climate emergency. Our aim is to harness financial economic theory and data analytics to generate recommendations useful to regulators and practitioners. Our proposal consists in three projects: • Project 1 offers an economic theory of the impact of responsible investors. We characterise the optimal investment policy across sectors of socially responsible investors seeking impact. The analysis generates concrete recommendations.. • Project 2 is mainly experimental. The goal is to determine whether people, when they are investing, care about the ethical dimensions of the firms they buy. The aim is to understand the psychology of non-pecuniary preferences and how it affects firm valuations. • Project 3 is empirical. We study how informational shocks regarding a company’s environmental performance affect market forecasts of its future earnings at various time horizons. Our project in multidisciplinary in its approach: the research consortium spans skills in economic theory, data analysis, psychology.

In this project, we will develop a behavioral economics module within the Constances epidemiological cohort in order to measure patient’s individual economic preferences toward risk, ambiguity and time. These psychological variables and the associated biases are the cornerstones of the normative and descriptive models of individual health decisions in health and behavioral economics. In WP1, we will administratively and logistically set up, implement and include an innovative behavioral economics module on individual preferences within the Constances cohort. We will conduct a web-based questionnaire to an online representative sub-sample of Constances volunteers in two waves at a one-year interval. Our aim is to collect a repeated measure of individual preferences of 5000 Constances volunteers. We will link this module to Constances survey data and medical records as well as relevant data from the French national security database (SNIRAM). We will hire specifically for this project a data manager and a data scientist (for respectively 24 and 18 months) who will prepare the dataset and preliminary statistics and will assist the scientific teams in charge of the four research projects presented hereafter. In WP2, we will investigate the evolution of individual preferences in a life course perspective and more precisely the causal and selection effects linking socioeconomic position to individual preferences (WP2.1) and the role of the patient’s health history in the evolution of individual preferences over time (WP2.2). In WP3, we will examine how individual preferences and socioeconomic indicators (SEP and economic insecurity) jointly determine individual choices of health-related behaviors in terms of primary prevention (e.g. over-eating, poor diets, lack of physical activity, smoking, alcohol abuse, drug use, sleep deprivation) and of secondary prevention (in particular for breast and cervical cancer screening) (WP 3.1) and of decisions related to pollution exposure and residential area (WP 3.2). The results of these studies will inform public policy makers on the decision making process involved in individual health-related behaviors and the social inequalities in health they can induce. Also, the unique dataset resulting from the BeHealth project will constitute a precious public good for national or international researchers in health economics, medicine, epidemiology and public health interested by the concepts developed in behavioral economics on individual preferences and deviations (or biases) from economic rationality.

The project F*STAR (Financial STAbility and the Real economy) is an extensive research program in the fields of financial economics and macro-finance. It focuses on the relationship between the funding policy of firms (both financials and non-financials) and the real economy. While funding of banks and corporations is an extremely broad topics, we will focus in this project on short-term funding. This type of funding corresponds to a large and growing fraction of the balance-sheet of banks and corporations and it is inherently seen as the most fragile source of funding. Furthermore, there is a direct and fundamental relationship between corporation funding and the real economy: Indeed a drop in funding leads to reduced investment, lower performance and negatively impacts employment and economic growth. While empirical investigations still remain scarce in academia because of lack of data on these over-the-counter debt markets, our empirical analyses will exploit unique data provided to us by the Banque de France. The F*STAR research team comprises seven researchers from HEC Paris, GREGHEC (CNRS UMR 2959), the Massachusetts Institute of Technology (USA), and Imperial College (UK). It combines experts from the fields of economics, banking, corporate finance, asset management, as well as regulation and spans both theory and empirics. The F*STAR project is divided into four subprojects or work packages, which capture various facets of the corporate funding market. Work package 1 - Stability of the Bank’s Wholesale Funding Market: In addition to deposits and central bank funding, commercial banks rely increasingly on financial markets (i.e., wholesale funding): interbank loans, repurchase agreements, and short-term debt securities sold to institutional investors. A prevailing view among economists and regulators is that wholesale funding is vulnerable to sudden stops, during which banks lose funding regardless of their credit quality. We will test empirically the resiliency of several segments of the wholesale funding market, as well as the effects of funding dry-ups on bank performance and on the macroeconomy. Work package 2 - Private Production of Safe Assets by Banks and Non-Financial Firms: Can claims on the private sector serve the role of safe assets? We will try to answer this question using high-frequency panel data on prices and quantities of European certificates of deposit (CD) issued by commercial banks, and commercial paper (CP) issued by non-financial institutions. We will measure the safety premium on all assets and study the joint-dynamics of privately-issued and government-issued safe assets. Work package 3 - Short-Term Debt Issuance of Non-Financial Firms: What is the rational for non-financial firms to massively use cash to repay their short-term debt at the end of the fiscal year? This phenomenon, which we will document for the first time in the literature, constitutes a puzzle for corporate finance theory as only net leverage, not gross leverage, is relevant to measure shareholders’ net wealth. We will investigate whether this pattern can be explained by a novel informational friction: asymmetric information between corporate insiders and outside financiers about the level of free cash holdings. Work package 4 - Theory of Collateral for Funding Markets: Why do some of the most developed debt markets rely so heavily on collateral? In this work package, we will theoretically explore the role of collateral in insulating creditors from the claims of other creditors, rather than from the actions of borrowers. This may imply that collateral should indeed be prevalent in environments where cash flow pledgeability is high, not low. Indeed, in such environments, taking on new debt is easier, leading creditors to require collateral as protection against debt dilution. We aim to develop a model based on that premise and explore its implications.