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What Does the Walrasian Auctioneer Know? Technology Adoption and Financial Innovation

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  • Ana Fernandes

Abstract

This paper proposes the view that financial development and economic growth are linked through the characteristics of technology. Perhaps the most obvious connection between technology and financial innovation emerges through risk-sharing. Technology is modeled as a distribution function over output values. While progress allows higher output values to be attained, it also changes the risk profile faced by economic agents. Technology adoption depends on the ability of the financial sector (the auctioneer) to price the new contingencies, therefore expanding the set of risk-sharing contracts offered to economic agents. The auctioneer is less knowledgeable about new technologies relative to entrepreneurs. As very high skilled entrepreneurs adopt the new technology, the auctioneer gradually learns how to price it. An implication of the analysis is the notion that financial development promotes economic growth only to the extent that it enhances the adoption of new technologies

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 526.

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Date of creation: 2004
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Handle: RePEc:red:sed004:526

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: Financial innovation; Technology adoption; Knowledge;

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Cited by:
  1. Diego Comin & Bart Hobijn, 2004. "Neoclassical Growth and the Adoption of Technologies," NBER Working Papers 10733, National Bureau of Economic Research, Inc.

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