Working Paper: NBER ID: w23156
Authors: Roger E.A. Farmer
Abstract: I review The End of Alchemy by Mervyn King, published by W.W. Norton and Company in 2016. I discuss King's proposed regulatory reform, the ‘Pawn Broker for All Seasons’ (PFAS) and I compare it to an alternative solution developed in my own work. I argue that unregulated trade in the financial markets will not, in general, lead to Pareto optimal allocations. As a consequence, solutions like the PFAS that correct problems with existing institutions are likely to be circumvented by the development of new ones.
Keywords: financial markets; regulatory reform; Pareto optimality
JEL Codes: E0; E02
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unregulated trade in financial markets (G18) | Pareto optimal allocations (D61) |
| solutions like the Pawn Broker for All Seasons (G24) | optimality in financial markets (G19) |
| new institutions (O43) | circumvent solutions like the Pawn Broker for All Seasons (D52) |