Boom and Bust Patterns in the Adoption of Financial Innovations

John C. Persons and Vincent A. Warther

Research in Financial Economics from Ohio State University

Abstract: We develop a dynamic model of the adoption of financial innovations. Each period, firms decide whether or not to adopt an innovation of uncertain value, and the profitability of each period's adoptions reveals information about the innovation's value. We show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are, in fact, consistent with fully rational behavior. We also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries have an incentive to encourage such adoption.

New Economics Papers: this item is included in nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cob.ohio-state.edu/~fin/journal/dice/papers/1996/96-1.ps (application/postscript)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.cob.ohio-state.edu/~fin/journal/dice/papers/1996/96-1.ps [301 Moved Permanently]--> https://www.cob.ohio-state.edu/~fin/journal/dice/papers/1996/96-1.ps [301 Moved Permanently]--> https://fisher.osu.edu/~fin/journal/dice/papers/1996/96-1.ps [301 Moved Permanently]--> http://fisher.osu.edu/people/fin/journal/dice/papers/1996 [301 Moved Permanently]--> https://fisher.osu.edu/people/fin/journal/dice/papers/1996)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wop:ohsrfe:9601

Access Statistics for this paper

More papers in Research in Financial Economics from Ohio State University Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().