Abstract
I propose a model of firm heterogeneity and limited managerial commitment within an industrial equilibrium, where firms use natural resource and produce greenhouse gases. Firms are allowed to merge and commit to reducing greenhouse gas emissions. Greenhouse gas levels produce climate shocks that can close firms. Three hypotheses are produced from the model that are empirically verified. First, firm value is negatively related to the overall greenhouse gas levels in the atmosphere, at 0.9% per year. Second, that the power-law distribution exponent of firm size is negatively related to the rising greenhouse gas levels in the atmosphere. Third, the exponent of the power-law distribution of greenhouse gas emissions is higher than that of firm size and declines with the overall level of greenhouse gas in the atmosphere.
Published Version
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