The Consequences of Financial Innovation: A Counterfactual Research Agenda
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.
We would like to thank Bob Hunt, Bill Janeway, Joel Mokyr, Antoinette Schoar, Scott Stern and participants at the American Economic Association's 2010 Meeting, the National Bureau of Economic Research's Rate and Direction of Inventive Activity Pre-Conference and Conference, and Brown University's Conference on Financial Innovation for their helpful comments. We thank the Division of Faculty Research and Development at the Harvard Business School for support of this project. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
The Consequences of Financial Innovation: A Counterfactual Research Agenda, Josh Lerner, Peter Tufano. in The Rate and Direction of Inventive Activity Revisited, Lerner and Stern. 2012
Josh Lerner & Peter Tufano, 2011. "The Consequences of Financial Innovation: A Counterfactual Research Agenda," Annual Review of Financial Economics, vol 3(1), pages 41-85.