Working Paper: NBER ID: w16780
Authors: Josh Lerner; Peter Tufano
Abstract: Financial innovation has been both praised as the engine of growth of society and castigated for being the source of the weakness of the economy. In this paper, we review the literature on financial innovation and highlight the similarities and differences between financial innovation and other forms of innovation. We also propose a research agenda to systematically address the social welfare implications of financial innovation. To complement existing empirical and theoretical methods, we propose that scholars examine case studies of systemic (widely adopted) innovations, explicitly considering counterfactual histories had the innovations never been invented or adopted.
Keywords: financial innovation; social welfare; counterfactual analysis
JEL Codes: G20; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Innovations (G29) | Economic Changes (N14) |
| Financial Innovations (G29) | New Opportunities for Investment and Consumption (E21) |
| New Opportunities for Investment and Consumption (E21) | Affecting Households and Firms (G59) |
| Financial Innovations (G29) | Lower Costs of Capital Raising (G32) |
| Financial Innovations (G29) | Systemic Risk (E44) |
| Financial Innovations (G29) | Positive and Negative Externalities (D62) |