Industrial organisation

Marius Zoican, 20 September 2014

Technological advances in equity markets entered the spotlight following the Flash Crash of May 2010. This column analyses the advantages and disadvantages of algorithmic and high-frequency trading. Ever-faster exchanges do not always improve liquidity. Following a speed upgrade in the Nordic equity markets, effective spreads posted by high-frequency traders increased by 32%.

Robert Engle, Eric Jondeau, Michael Rockinger, 20 September 2014

With the recent Global Crisis, the interest in systemic risk and the interconnection between financial institutions has increased. This column investigates the case of European financial firms, where several factors can jeopardise a firm’s financial health. Using data since 2000 to evaluate the firms’ systemic risk, the authors find that for certain countries, the cost to rescue the riskiest domestic banks is too high. They might be considered too big to be saved.

Avner Offer, 19 September 2014

Victory in World War I relied on three types of energy: renewable energy for food and fodder, fossil energy, and high explosive. This column argues that the Allies had a clear advantage in manpower, coal, and agriculture, but not enough for a quick decision. Mobilisation in continental economies curtailed food production, occasionally to a critical level. Technical competition was a matter of capacity for innovation, not of particular breakthroughs. Coercive military service and rationing of scarce energy and food had egalitarian consequences that continued after the war.

Daron Acemoglu, Matthew O. Jackson, 19 September 2014

Social norms shape interactions but can be in conflict with new laws, often making such laws ineffective. This column presents new research on the interplay of laws and norms. High law-breaking induces less private cooperation, increasing the law-breaking further. For a successful change in behaviour, gradual imposition of new laws is recommended. An important aspect is that these new laws should not be in a strong conflict with the existing norms. 

Lee Branstetter, Francisco Lima, Lowell Taylor, Ana Venâncio, 18 September 2014

Business groups and their political allies advocate deregulation as a pathway to faster growth, pointing to a strong negative relationship between regulatory barriers to entry and economic performance. This column argues that cross-sectional estimates have oversold the strength of this relationship and its implications for policy. Quasi-experimental evidence from a Portuguese policy reform shows that deregulation matters, but its impact is limited – it is not the panacea that pundits proclaim it to be.

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