LENDING ROBOTS AND HUMAN CROWDS: INTEREST RATE DETERMINATION ON A REVERSE AUCTION PLATFORM

We analyze the determinants of the level of interest rates related to business loans traded on digital crowdlending platforms. We consider one of the leading platforms in France and collect-ed original data on all the projects financed via this platform. On that platform, interest rates are set by the crowd of investors through a reverse auction process. We show that the loan characteristics and the scoring provided by the platform significantly influences the interest rate. However, though financial ratios are used traditionally to estimate credit risk, those ratios do not exhibit significant influence. Besides, we analyze the impact of the recent implementation of an automated auction mechanism. This implementation seems to have a large impact on both auction duration and on the determinants of interest rate. This suggests that use of a robot im-pacts on price and saving allocation on this platform-based credit market

Shocks, Stocks and Ratings:The Financial Community Response to Global Environmental and Health Controversies

The financial community suggests it increasingly accounts for the environmental and social performance of the companies it invests in. To investigate this claim, we study how stock market participants and credit rating agencies respond to environmental and health controversies with internationally operating companies. Stock returns and rating changes are the most prominent financial signals regarding the appreciation of news by the financial community. The actions of numerous investors who trade on public information determine firm value. Credit rating agencies produce ratings based on private information, in part to support these evaluations. Ratings focus directly on a firm’s default and business risk which itself is increasingly associated with global environmental and health controversies. Financial investors show a timely and significant response to measures of such controversies, but this response is highly generic and is small from an economic point of view. Credit ratings do not immediately respond in a significant way. Thus, markets and raters respond in a different way to the controversies. We conclude that the response of the financial community to global environmental and health controversies is limited. Therefore, the financial community seems unable to discipline the economic agents behind the controversies

The European Commission's Proposal for a Financial Transactions Tax: A Critical Assessment

A financial activities tax (FAT) and a financial transactions tax (FTT) are the main alternative ways of recouping some of the public money used to bail out the financial sector after the great crisis of 2007–08. In preparing a common proposal for the European Union, the European Commission initially appeared to favour the FAT, but then swung its weight behind the FTT in late 2011. Its rationale was that in addition to generating revenue, this tax could also help to stabilize the financial markets by curbing excessive speculative trading. This article takes a different position. Its central argument is that the FTT would amplify rather than dampen market instability by interfering with the functions of important financial institutions. Its chief conclusion is that the FAT is superior to the FTT

Employed Algorithms: A Labor Model of Corporate Liability for AI

The workforce is digitizing. Leading consultancies estimate that algorithmic systems will replace 45 percent of human-held jobs by 2030. One feature that algorithms share with the human employees they are replacing is their capacity to cause harm. Even today, corporate algorithms discriminate against loan applicants, manipulate stock markets, collude over prices, and cause traffic deaths. Ordinarily, corporate employers would be responsible for these injuries, but the rules for assessing corporate liability arose at a time when only humans could act on behalf of corporations. Those rules apply awkwardly, if at all, to silicon. Some corporations have already discovered this legal loophole and are rapidly automating business functions to limit their own liability risk. This Article seeks a way to hold corporations accountable for the harms of their digital workforce: some algorithms should be treated, for liability purposes, as corporate employees. Drawing on existing functional characterizations of employment, the Article defines the concept of an “employed algorithm” as one over which a corporation exercises substantial control and from which it derives substantial benefits. If a corporation employs an algorithm that causes criminal or civil harm, the corporation should be liable just as if the algorithm were a human employee. Plaintiffs and prosecutors could then leverage existing, employee-focused liability rules to hold corporations accountable when the digital workforce transgresses

Financialisation as a (it’s-not-meant-to-make-sense) gigantic global joke

This paper analyses events in financial markets since the 2008 financial crisis in both the developed and the developing worlds, giving especial attention to the processes of ‘financialisation’; that is, to the combined effect of the growing size and dominance of the financial sector relative to the non-financial sector, and the diversification towards financial activities in non-financial corporations. The main conclusion is that we are paying the price (and a huge one) for two related phenomena; one belongs to the realm of ideology and knowledge, the other to ‘power play’

Financial imbalances and financial fragility

This paper develops a general equilibrium model to analyze the link between financial imbalances and financial crises. The model features an interbank market subject to frictions and where two equilibria may (co-)exist. The normal times equilibrium is characterized by a deep market with highly leveraged banks. The crisis times equilibrium is characterized by bank deleveraging, a market run, and a liquidity trap. Crises occur when there is too much liquidity (savings) in the economy with respect to the number of (safe) investment opportunities. In effect, the economy is shown to have a limited liquidity absorption capacity, which depends —inter alia— on the productivity of the real sector, the ultimate borrower. I extend the model in order to analyze the effects of financial integration of an emerging and a developed country. I find results in line with the recent literature on global imbalances. Financial integration permits a more efficient allocation of savings worldwide in normal times. It also implies a current account deficit for the developed country. The current account deficit makes financial crises more likely when it exceeds the liquidity absorption capacity of the developed country. Thus, under some conditions —which this paper spells out— financial integration of emerging countries may increase the fragility of the international financial system. Implications of financial integration and global imbalances in terms of output, wealth distribution, welfare, and policy interventions are also discussed. JEL Classification: E21, F36, G01, G21Asymmetric information, financial crisis, financial integration, global imbalances, Moral Hazard

The Factors of Growth of Small Family Businesses: A Robust Estimation of the Behavioral Consistency in the Panel Data Models

The paper quantifies the role of factors associated with the growth (or decline) of micro and small businesses in European economies. The growth is related to employment and value added in enterprises as well as to ten institutional variables. We test the data for consistency of behavioural patterns in various countries and gradually remove outlying observations, quite a unique a pproach in the panel data analysis, that can lead to erroneous conclusions when using the classical estimators. In the first part of this paper we outline a highly robust method of estimation based on fixed effects and least trimmed squares (LTS). In its second part we apply this method on the panel data of 28 countries in 2002-2008 testing for the hypothesis that micro and small businesses in Europe use different strategies for their growth. We run a series of econometric tests where we regress employment and total net production in micro and small businesses on three economic factors: gross capital returns, labour cost gaps in small relative to large enterprises and the GDP per capita. In addition, we also test the role of 10 institutional factors in the growth of familty businesses.Family business, robust estimator, LTS, fixed effects