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Competition in financial innovation
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Carvajal, Andrés M., Rostek, Marzena and Weretka, Marek (2012) Competition in financial innovation. Econometrica, Vol.80 (No.5). pp. 1895-1936. doi:10.3982/ECTA9837 ISSN 0012-9682.
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Official URL: http://dx.doi.org/10.3982/ECTA9837
Abstract
This paper examines the incentives offered by frictionless markets for innovation of assetbacked securities. Assuming homogeneous preferences across investors with heterogeneous risk-sharing needs and allowing for short selling of securities, we characterize economies in which competition provides insufficient incentives to innovate so that, in equilibrium, asset markets are incomplete in all (pure strategy) equilibria—even when innovation is essentially costless. Thus, we provide an alternative to Allen and Gale’s (1991) classic foundation for endogenous market incompleteness.
Item Type: | Journal Article | ||||
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Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Econometrica | ||||
Publisher: | Blackwell Publishing | ||||
ISSN: | 0012-9682 | ||||
Official Date: | September 2012 | ||||
Dates: |
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Volume: | Vol.80 | ||||
Number: | No.5 | ||||
Page Range: | pp. 1895-1936 | ||||
DOI: | 10.3982/ECTA9837 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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