Finance sector wages: explaining their high level and growth

Joanne Lindley, Steven McIntosh 21 September 2014

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Individuals who work in the finance sector enjoy a significant wage advantage. This wage premium has received increasing attention from researchers following the financial crisis, with focus being put onto wages at the top of the distribution in general, and finance sector wages in particular (see Bell and Van Reenen 2010, 2013 for discussion in the UK context). Policymakers have also targeted this wage premium, with the recent implementation of the Capital Requirements Directive capping bankers’ bonuses at a maximum of one year of salary from 2014.

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Topics:  Financial markets Microeconomic regulation

Tags:  Bankers’ bonuses, banking, wages, Inequality, UK, regulation, asymmetric information, Executive compensation, Finance, task-biased technological change, ICT

Ballooning finance

Bruno Biais, Jean-Charles Rochet, Paul Woolley 21 August 2014

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One of the curiosities of the modern economy is why the finance sector is so large. Economists have only recently sought to document and ponder this phenomenon. Empirically, Greenwood and Scharfstein (2013) find that, in the US, financial services, which accounted for 2.8% of GDP in 1950, made up 8.3% of GDP in 2006.

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Topics:  Financial markets

Tags:  securitisation, financial crises, moral hazard, asymmetric information, financial innovation, global crisis, bubbles, monitoring, shirking, junk bonds, CDOs, CDSs, ETFs

How retail drug markets in poor countries develop

Daniel Bennett, Wes Yin 14 August 2014

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Millions of people die each year from infectious diseases like malaria, TB, HIV, and diarrhoea, many of which have drug therapies. We need effective medicine to confront the alarming burden of infectious disease in the developing world. However, many of the drugs for sale in developing countries are of poor quality. Counterfeiters sell ineffective products that imitate the appearance of established brands, while small manufacturers make and distribute substandard versions of common generics.

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Topics:  Development Health economics Industrial organisation

Tags:  competition, pharmaceuticals, India, quality, asymmetric information, economies of scale, healthcare, adverse selection, drugs, medicine, market for lemons, chains

Selling assets to raise corporate capital

Alex Edmans, William Mann 15 February 2014

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Asset sales are a means of financing

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Topics:  Financial markets Frontiers of economic research

Tags:  asymmetric information, capital, adverse selection, information asymmetry, lemons problem, asset sales, financing

The impact of asymmetric information about collateral values in mortgage lending

Johannes Stroebel 13 December 2012

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The mortgage market was the starting point for several of the post-Lehman crises: the subprime crisis, the Irish crisis, the Spanish crisis, and many more. It is a market typified by massive information asymmetries, and it has been argued that a market based on highly asymmetric information contributed to the buildup of bad mortgage debt during the first half of the last decade.

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Topics:  Global crisis Macroeconomic policy

Tags:  subprime crisis, asymmetric information, global crisis

How can Bill and Melinda Gates increase other people's donations to fund public goods?

Dean Karlan, John List,

Date Published

Mon, 04/02/2012

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Topics

Development Poverty and income inequality

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Rent capture through financial innovation

Bruno Biais, Jean-Charles Rochet, Paul Woolley 25 March 2010

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Financial institutions can create frictions. Until recently, economic theory had paid relatively little attention to this possibility. For example, asset pricing theory often assumes that prices are set directly by the "representative household", treating the finance sector as an efficient pass-through. As a result of the global financial crisis, economists are thankfully becoming more aware of the need to account for the real world complication of delegation to agents (Buiter 2009, Kirman 2009, and Kobayashi 2009).

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Topics:  Financial markets Global crisis

Tags:  financial crises, asymmetric information, financial regulation

Information and illegal market mechanisms

Trevon D. Logan, Manisha Shah 25 April 2009

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Economists have coalesced around the view that institutional design can help overcome problems of asymmetric information. While George Akerlof (1970) is credited with bringing this insight into the mainstream of the profession, his work can also be viewed as part of the earlier institutional analysis by Thomas Schelling (1960), Douglass North (1981), Ronald Coase (1937, 1960), and Oliver Williamson (1975) that fuelled developments in contract theory, game theory, and industrial organisation, producing notions such as incomplete contracts, signalling, and screening.

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Topics:  Institutions and economics

Tags:  institutions, asymmetric information, contract enforcement

The economics of labour market intermediation

David Autor 30 October 2008

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The labour market depicted by undergraduate textbooks (e.g. Mankiw 2006) is a pure spot market with complete information and atomistic price-taking. Labour economists have long understood that this model is highly incomplete. Search is costly, information is typically imperfect and often asymmetric, firms are not always price takers, and atomistic actors are typically unable to resolve coordination and collective action failures.

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Topics:  Labour markets

Tags:  Labour Markets, asymmetric information, labour market intermediaries

Bagehot, central banking, and the financial crisis

Xavier Vives 31 March 2008

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The present financial crisis poses two main questions: whether it is similar to past crises and how central banks should intervene to preserve the stability of the system.

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Topics:  Financial markets

Tags:  Central Banks, subprime crisis, liquidity, financial stability, asymmetric information

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