Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77587
Authors: 
Falkinger, Josef
Year of Publication: 
2012
Series/Report no.: 
Working Paper Series, Department of Economics, University of Zurich 93
Abstract: 
This paper addresses the discussion between economic power and the power of politics with particular focus on financial markets. After general reflections about the economic basis of power, the paper discusses in a general equilibrium framework how financial innovations can lead to risk creation and an inflation of financial products. This creates a fundamental disorder in the financial system which from an aggregate point of view can be described in a standard portfolio framework, in which higher rates of return go hand in hand with higher private risks but also with increasing externalized (social) risk and insurance illusion. Rate of return regulation is proposed as an appropriate regulatory measure. Alternatively the deficiency could be cured by admission regulations for financial products which put the burden of proof for no external (systemic) damages of a financial instrument to the issuer.
Subjects: 
power
financial crisis
risk-creation
inflation of financial innovations
rate of return regulation
JEL: 
D53
G01
G18
A11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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