Haris Tabakovic, Thomas Wollmann, 13 September 2018

When public sector employees end up working for the private firms which they monitored, regulated, and even disciplined, a clear conflict of interest arises. However, little is known about the the scale and scope of this ‘revolving door’ problem. This column presents evidence from patent examiners employed by the US Patent and Trademark Office, and shows that examiners grant considerably more patents to the firms that ultimately hire them, and that the most likely explanation is that examiners are ‘captured’. This leniency lowers the quality of patents coming out of the agency. 

Ramin Baghai, Bo Becker, 10 November 2016

Excessively high credit ratings are thought to have contributed to the Global Crisis. A key concern is the conflict of interest that arises due to rating agencies being mainly paid by the companies whose securities they rate. This column uses Indian data to explore how the commercial ties between issuers and raters affect ratings. The results indicate a fee-driven conflict of interest, with an upward bias in the ratings of issuers whose fees are important to an agency. This highlights the potential benefits for the financial system of circumscribing rating agency consulting.

Vasiliki Skreta, Laura Veldkamp, 27 March 2009

Understanding the origins of the crisis requires understanding the failures of the market for ratings. This column explains how conflicts of interest and shopping for the best rating produced biased assessments of complex assets, whereas these bad incentives had not plagued ratings of simpler assets. We need to rethink how ratings are provided, lest the next bout of financial innovation trigger another round of ratings inflation and subsequent financial market turmoil.

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