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The Consequences of Financial Innovation: A Counterfactual Research Agenda

Author

Listed:
  • Josh Lerner

    () (The National Bureau of Economic Research, Cambridge, Massachusetts 02138
    Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • Peter Tufano

    () (The National Bureau of Economic Research, Cambridge, Massachusetts 02138
    Saïd Business School, University of Oxford, Oxford, OX1 1HP, United Kingdom)

Abstract

Financial innovation has been both praised as the engine of growth of society and castigated for being the source of the weakness of the economy. In this article, we review the literature on financial innovation and highlight the similarities and differences between financial innovation and other forms of innovation. We also propose a research agenda to systematically address the social welfare implications of financial innovation. To complement existing empirical and theoretical methods, we propose that scholars examine case studies of systemic (widely adopted) innovations, explicitly considering counterfactual histories had the innovations never been invented or adopted.

Suggested Citation

  • Josh Lerner & Peter Tufano, 2011. "The Consequences of Financial Innovation: A Counterfactual Research Agenda," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 41-85, December.
  • Handle: RePEc:anr:refeco:v:3:y:2011:p:41-85
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.financial.050808.114326
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    Keywords

    new products; new services; financial institutions;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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