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Whither Capitalism? Financial externalities and crisis
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Miller, Marcus and Zhang, Lei (2012) Whither Capitalism? Financial externalities and crisis. Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2012 (Number 79).
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Text (Working paper)
WRAP_79.2012_miller.pdf - Published Version Download (1967Kb) | Preview |
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
As with global warming, so with financial crises – externalities have a lot to answer for. We
look at three of them. First the financial accelerator due to ‘fire sales’ of collateral assets -- a
form of pecuniary externality that leads to liquidity being undervalued. Second the ‘risk-
shifting’ behaviour of highly-levered financial institutions who keep the upside of risky
investment while passing the downside to others thanks to limited liability. Finally, the
network externality where the structure of the financial industry helps propagate shocks
around the system unless this is checked by some form of circuit breaker, or ‘ring-fence’.
The contrast between crisis-induced Great Recession and its aftermath of slow growth in the
West and the rapid - and (so far) sustained - growth in the East suggests that successful
economic progress may depend on how well these externalities are managed.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Financial crises , Limited liability, Financial risk , Financial risk management | ||||
Series Name: | CAGE Online Working Paper Series | ||||
Publisher: | Department of Economics, University of Warwick | ||||
Place of Publication: | Coventry, UK | ||||
Official Date: | March 2012 | ||||
Dates: |
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Volume: | Volume 2012 | ||||
Number: | Number 79 | ||||
Number of Pages: | 27 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Date of first compliant deposit: | 1 August 2016 | ||||
Date of first compliant Open Access: | 1 August 2016 |
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