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After the FloodHow the Great Recession Changed Economic Thought$
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Edward L. Glaeser, Tano Santos, and E. Glen Weyl

Print publication date: 2017

Print ISBN-13: 9780226443546

Published to Chicago Scholarship Online: September 2017

DOI: 10.7208/chicago/9780226443683.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 15 October 2019

Finance and the Common Good

Finance and the Common Good

Chapter:
(p.277) Chapter Nine Finance and the Common Good
Source:
After the Flood
Author(s):

E. Glen Weyl

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226443683.003.0009

I document empirically that the field of financial economics has been mostly concerned with positive issues (largely related to “informational efficiency” of prices) rather than allocative efficiency relative to the field of industrial organization, which I take as a comparison point. I argue these divergent paths are partly driven by financial incentives. The strength of regulation in competition policy and its reliance on economic evidence stimulated, through demand for teaching and consulting services, extensive work on welfare in industrial organization. The weakness and lack of economic rigor in financial regulation helped stimulate the rise of quantitative arbitrage strategies that demanded teaching and consulting services from economists, leading to extensive work on predicting the paths of asset prices or showing these cannot be predicted. I provide some weak suggestive empirical evidence consistent with this hypothesis and discuss prospects for these underlying conditions changing. I conclude with a discussion of how the works in this volume and the work of José Scheinkman in whose honor this volume was written might contribute to this shift.

Keywords:   consulting, normative economics, finance, industrial organization, positive economics

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