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Welfare Effects of the Allocation of Talent to Financial Trading: What Does the Grossman-Stiglitz Model Say?

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  • Lutz G. Arnold
  • Sebastian Zelzner

Abstract

This paper investigates the implications of the Grossman-Stiglitz (1980) model on the informational eficiency of financial markets for the optimality of the allocation of talent to financial trading versus entrepreneurship. Informed traders make the financial market more informationally eficient, entrepreneurs create output and jobs. The model indicates that financial trading attracts too much, rather than too little, talent.

Suggested Citation

  • Lutz G. Arnold & Sebastian Zelzner, 2020. "Welfare Effects of the Allocation of Talent to Financial Trading: What Does the Grossman-Stiglitz Model Say?," Working Papers 190, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:190_arnold_zelzner
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    File URL: http://www.bgpe.de/texte/DP/190_Arnold_Zelzner.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    : market eficiency; asymmetric information; allocation of talent; occupational choice;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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