Josh Lerner, Amit Seru, 14 September 2021

Financial innovation is intensely controversial, yet we know little about where or by whom these new products and services are developed. This column looks at over 24,000 financial US patents applied for between 2000 and 2018 to analyse the nature of financial patents. A surge in financial patenting was driven by IT firms and firms in industries outside of finance. Financial regulatory actions seem to have adversely affected innovation by financial firms, while regions with the highest technological opportunities attracted financial innovation by IT and non-financial firms.

Tobias Kretschmer, Sven Werner, 28 August 2021

Recent discussions on how to regulate dominant online platforms revolve around the suitability of applying existing regulatory frameworks. This column contrasts the economic and strategic features of platform business models to those of utility industries, which are often considered structurally similar. It argues that the design of effective regulation for dominant digital platforms should account for platforms’ nature as an ecosystem of independent actors and for their relatively shorter innovation cycles.

Charles Goodhart, 30 July 2021

A predominant example of moral hazard is the application of limited liability to the shareholders of publicly listed private-sector corporations. This column argues that changing the incentives for senior employees and majority shareholders for listed firms may be the most effective form of regulation. The author suggests that creating a system where managerial staff and other shareholders are incentivised to adhere to best practice to protect themselves, as well as the firm in question, is optimal.

Miguel Ampudia, Thorsten Beck, Alexander Popov, 11 June 2021

The trade-off between stability and growth has long been a subject of policy debate and informs views on the extent to which the supervision of banks should be centralised. This column presents analysis of the ECB’s Single Supervisory Mechanism, using the announcement of the mechanism and its implementation as a quasi-natural experiment. It finds that centralised bank supervision is associated with a decline in lending to firms, which is accompanied by a shift away from intangible investment and towards more cash holdings and higher investment in easily collateralisable physical assets.

Jan I. Haaland, Ian Wooton, 14 May 2021

The changes in the UK’s trading relationship with the EU are likely to have widespread effects, many of which are yet to be understood in full. This column introduces the issue of compliance with rules of origin requirements within free trade agreements. The authors argue that complying with these rules can present firms with additional production costs that would not have been present had the UK remained a part of the EU.

Matthias Breuer, Christian Leuz, Steven Vanhaverbeke, 08 April 2021

Firms often argue that disclosure and reporting regulations such as the EU Accounting Directive require them to reveal proprietary information, which discourages innovation. This column explores the effects of disclosure requirements on corporate innovation in the EU, and finds that forcing firms to publicly disclose their financial statements does indeed discourage innovative activities. At the industry level, positive information spillovers to competitors, suppliers, and customers appear insufficient to compensate for the negative direct effect on innovation. Indeed, the spillovers seem to concentrate innovation within a few large firms in a given industry.

Massimo Morelli, Matia Vannoni, 29 March 2021

The link between regulation and the economy has been central in political economy since the 1970s. Using data on US states from 1965 to 2012, this column argues that regulation may be good or bad for the economy depending on its type and the information and incentives of the regulators. More regulation leads to higher economic growth when that regulation is more detailed, when the current level of regulation is lower, when uncertainty is higher, and in contexts with greater competition and/or opportunity of experimentation among regulation proposers and greater accountability. 

Lauren Cohen, Umit Gurun, Danielle Li, 14 March 2021

Covid-19 has revealed the importance of quick, efficient, but safe medical innovation. The development of various vaccines, as well as a range of treatments, have been tech tools in the fight against the public health and economic crises. This column explores the impact of informal deadlines within the drugs market, arguing that such regulatory pressures can end up distorting product safety and marketability. The findings highlight the need for well-designed regulatory systems which allow medical innovators to move swiftly but safely during the next health shock.

Giorgio Barba Navaretti, Alberto Pozzolo, 12 March 2021

It has been two years since Wirecard suddenly collapsed. Giorgio Barba Navaretti and Alberto Pozzolo explain to Tim Phillips why it is so hard to supervise global fintechs, and how regulators can do a better job next time.

Philippe Aghion, Antonin Bergeaud, John Van Reenen, 01 February 2021

While there is suggestive evidence that regulations may have a stifling effect on innovation, there is as yet no rigorous economic framework to quantify the magnitude of such regulatory effects on innovation and the aggregate economy. This column proposes such a framework tests its implications on data from France. As the framework predicts, regulations do indeed hamper innovation, but the negative effects concern only incremental innovations and are absent for radical innovations.  Overall, regulations are estimated to reduce aggregate innovations by 5%. 

Chiara Farronato, Jessica Fong, Andrey Fradkin, 24 January 2021

Mergers between digital platforms frequently attract widespread attention, not just from the media but from researchers in economics and law as well. This column explores the effects of a merger between two rival platforms, using the case of the two largest US two-sided markets for dog sitting. The results of the study suggest that online users are, on average, no better off with a single dominant platform compared to two competitors. The authors argue that this net effect is the result of two counterbalancing forces: network effects and platform differentiation.

Francis Bloch, Gabrielle Demange, 17 December 2020

Tax avoidance by multinational firms presents a substantial challenge to policymakers and to international organisations. This column explores two possible policy regimes that could be introduced to target global firms focused on digital services: separate accounting and formula apportionment. The results of the study suggest that the separate accounting approach could be optimal, inducing lower efficiency costs and larger fiscal revenues. Such a policy regime would also make country-by-country reporting compulsory and reliable, which would induce additional outside benefits.

Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 22 November 2020

The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe.

Molly Lesher, 13 October 2020

Many new innovations do not fit neatly into the traditional definitions of markets as recognised by existing regulatory bodies. One way policymakers can define new regulatory frontiers for such technologies is to implement ‘sandboxes’ – frameworks that provide participant companies with some regulatory flexibility while insulating the impact on consumers. This column argues that while sandboxes can bring benefits, they are not always the best approach and policy experimentation can – and should – take many forms.

Tommaso Bighelli, Filippo di Mauro, Marc Melitz, Matthias Mertens, 13 October 2020

Aggregate firm concentration has increased in Europe in the last decade. Using firm-level data, this column shows that concentration is positively associated with productivity at the sector level. As a result, rising concentration should not be viewed as conclusive evidence of a weak competitive environment and need not necessarily be a cause for concern. Rather, rising concentration may be a reflection of more efficient market processes. This has important consequences for industrial and antitrust policy, which must carefully evaluate the costs and benefits of increasing concentration.

Ufuk Akcigit, Sina T. Ates, Josh Lerner, Richard Townsend, Yulia Zhestkova, 24 September 2020

The US military community has highlighted the potential security threat posed by foreign venture investments in Silicon Valley, particularly from Chinese stakeholders. This column presents a theoretical and empirical analysis of the relationship between venture capital and national security, focusing on the ability of overseas firms to gain a domestic technological advantage through investing in the US tech sector. The growing importance of this the technology sector, as well as the national security issues at stake, mean that understanding the correlations is a vital avenue of future research.

Eiichi Tomiura, Banri Ito, Byeongwoo Kang, 12 August 2020

Cross-border data flows are increasingly critical for modern firms, and the regulation of data poses a distinctly novel challenge for policymakers in the 21st century. This column presents survey data from Japan, investigating exactly which type of firm are most likely to be affected by regulations surrounding the international exchange of data. The results of the study suggest that new technologies such as Artificial Intelligence and 3D printers are usually adopted by the most productive and innovative firms, and that hampering these firms with regulation may create harmful effects for the wider economy.

Marc Ivaldi, Jiekai Zhang, 10 August 2020

Television channels face a trade-off between the quality service (and number of viewers) and the revenue generated by advertisements. The market is said to be two-sided, with TV channels providing a platform through which advertisers and consumers are brought together during commercial breaks. This column examines the effects of the merge between two digital TV channels in France, and the regulatory intervention, on the quality of programming for viewers and the availability and cost of advertising space for commercial advertisers. 

Marco Le Moglie, Giuseppe Sorrenti, 01 August 2020

Criminal organisations invest vast sums of money within the legal economies of many countries worldwide. These investments provide criminal organisations with a powerful tool to raise forms of social consensus in some portions of the population. This column provides a characterisation of organised crime’s investment in Italy’s legal economy, a country historically plagued by the presence of criminal groups. The results indicate that during periods of economic and social downturn, organised crime may capitalise on the weaknesses of the institutional response to the crisis, consolidating and possibly expanding, its role as an investor in the legal economy.

Jay Pil Choi, Taiji Furusawa, Jota Ishikawa, 26 June 2020

To address the issue of tax avoidance by multinational enterprises, governments impose transfer-pricing rules to control transfer-price manipulation. Using a theoretical framework allowing for the possibility of profit shifting, this column explores the interplay between transfer-pricing regulations and tax competition. It finds that the nature of tax competition can depend on the tightness of transfer-pricing regulation, and a tax-haven country does not always prefer lax transfer-pricing regulation. Thus, the incentives of the host and FDI source country can be aligned to set up global regulatory standards for transfer pricing.

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