Finance and the Common Good

27 Pages Posted: 30 May 2013 Last revised: 10 Feb 2016

E. Glen Weyl

Microsoft Research; Yale University

Date Written: February 9, 2016

Abstract

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 v. positive economics, finance, industrial organization

JEL Classification: A14, A11, A13, B21, G00, K00, L00, N20, N80

Suggested Citation

Weyl, E. Glen, Finance and the Common Good (February 9, 2016). Available at SSRN: https://ssrn.com/abstract=2271832 or http://dx.doi.org/10.2139/ssrn.2271832

Eric Glen Weyl (Contact Author)

Microsoft Research ( email )

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HOME PAGE: http://www.glenweyl.com

Yale University ( email )

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