The Power of Financial Innovation

Abstract

This paper articulates the research and case studies I have produced on how, when, and why financial innovation is beneficial or harmful to society. Based on a broad set of innovations, it highlights three unifying insights. First, financial innovations are not inherently good or bad, as their effects largely depend on its user’s intention. Second, to evaluate a financial innovation one must pin down the way it interacts with a fundamental friction in the economy. Last, financial innovation, even when implemented with good intention and effectively mitigating or leveraging a core friction, can create detrimental effects if its broader impacts are not carefully monitored.