Empirical Studies of Financial Innovation: Lots of Talk, Little Action?

Frame, W. Scott; White, Lawrence J.

doi:10.1257/.42.1.116

Cited by 197 publications

(186 citation statements)

References 6 publications

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“…As a theoretical matter, there is no presumption that more financial innovation contributes to higher social welfare. Mathematical models created to demonstrate how financial innovation operates in an economy have shown that, in principle, they can either increase or decrease social welfare (Elul, 1995;Frame and White, 2004).…”

Section: The Social Efficiency Of Financial Innovationmentioning

confidence: 99%

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How big is too big? On the social efficiency of the financial sector in the United States

Epstein¹,

Crotty²

2013

Capitalism on Trial

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PREFACEThis working paper is one of a collection of papers, most of which were prepared for and presented at a festschrift conference to honor the life's work of Professor Thomas Since the early 1970s, Tom Weisskopf has been challenging the foundations of mainstream economics and, still more fundamentally, the nature and logic of capitalism. That is, Weisskopf began putting capitalism on trial over 40 years ago. He rapidly established himself as a major contributor within the newly emerging field of radical economics and has remained a giant in the field ever since. The hallmarks of his work are his powerful commitments to both egalitarianism as a moral imperative and rigorous research standards as a means.We chose the themes and contributors for this working paper series, and the upcoming festschrift, to reflect the main areas of work on which Tom Weisskopf has focused, with the aim of extending research in these areas in productive new directions. The series is divided into eight sections, including closing reflections by our honoree himself, Professor Weisskopf. Each section except for the last includes comments by discussants as well as the papers themselves.

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Section: The Social Efficiency Of Financial Innovationmentioning

confidence: 99%

“…But what about social impacts? Frame and White (2004) published a comprehensive survey of the determinants and effects of financial innovation. As their paper shows, there has been relatively little study of financial innovation.…”

Section: The Social Efficiency Of Financial Innovationmentioning

confidence: 99%

How big is too big? On the social efficiency of the financial sector in the United States

Epstein¹,

Crotty²

2013

Capitalism on Trial

View full text Add to dashboard Cite

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“…"Everybody talks about financial innovation, but (almost) nobody empirically tests hypotheses about it." Frame and White (2004) "I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy." 1 Paul Volcker, former Chairman of the Federal Reserve…”

Section: Introductionmentioning

confidence: 99%

“…2 In early 2010, the Economist organized a 10-day online debate between Ross Levine and Joseph E. Stiglitz on the role and benefits of financial innovation: http://www.economist.com/debate/overview/166. 3 See discussion in White (2004 and) who conduct a thorough survey of the empirical literature on financial innovation. For theoretical literature related to financial innovation, Duffie and Rahi (1995) introduce a special issue of Journal of Economic Theory.…”

Section: Introductionmentioning

confidence: 99%

Financial innovation: The bright and the dark sides

Beck

Chen

Lin

et al. 2016

Journal of Banking & Finance

254

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This is the accepted version of the paper.This version of the publication may differ from the final published version.Permanent repository link: http://openaccess.city.ac.uk/15662/ Link to published version: http://dx. Abstract:Based on data from 32 countries over the period 1996-2010, this paper is the first to assess the relationship between financial innovation, on the one hand, and bank growth and fragility, as well as economic growth, on the other hand. We find that different measures of financial innovation, capturing both a broad concept and specific innovations, are associated with faster bank growth, but also higher bank fragility and worse bank performance during the recent crisis. These effects are stronger in countries with larger securities markets and more restrictive regulatory frameworks. In spite of these seemingly ambiguous findings, our evidence points to a positive net effect of financial innovation on economic growth: financial innovation is associated with higher growth in countries and industries with better growth opportunities. JEL classification: G2; G15; G28; G01; O3

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“…Although product innovation has played a significant role in transforming many industries, Frame and White () note that there are few empirical studies of the impact of innovation in the financial services industries. In particular, little academic attention has been focused on the role of innovation in the insurance industry .…”

Section: Insurance Innovation and Adverse Selectionmentioning

confidence: 99%

Cream Skimming: Innovations in Insurance Risk Classification and Adverse Selection

Cather¹

2018

Risk Manage Insurance Review

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We demonstrate how innovations in insurance risk classification can lead to adverse selection, or cream skimming, against insurers that are slow to adopt such pricing innovations. Using a model in which insurers with insufficient pricing data cannot differentiate between low-and high-risk policyholders and therefore charge both the same premium, we show how innovative insurers develop new risk classification data to identify overcharged low-risk policyholders and attract them from rival insurers with reduced prices. Less innovative insurers thus insure a growing percentage of high-risk customers, resulting in adverse selection attributable to their informational disadvantage. Next, we examine two cases in which "Big Data" innovations in risk classification led to concerns about cream skimming among U.S. auto insurers. First, we track the rapid adoption of credit-based insurance scores as pricing variables in personal auto insurance markets. Second, we examine the growing popularity of usage-based insurance programs like telematics, plans in which insurers use data on policyholders' actual driving behavior to set prices that attract low-risk customers. Issues associated with the execution of such pricing strategies are discussed. In both cases, we document how rival insurers quickly adopt successful innovations to reduce their exposure to adverse selection.David Cather is in the

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Empirical Studies of Financial Innovation: Lots of Talk, Little Action?

Cited by 197 publications

References 6 publications

How big is too big? On the social efficiency of the financial sector in the United States

How big is too big? On the social efficiency of the financial sector in the United States

Financial innovation: The bright and the dark sides

Cream Skimming: Innovations in Insurance Risk Classification and Adverse Selection

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