publication . Preprint . 2005


Ana Fernandes;
Open Access
  • Published: 01 Jun 2005
Why are new financial instruments created? This paper proposes the view that financial development arises as a response to the contractual needs of emerging technologies. Exogenous technological progress generates a demand for new financial instruments in order to share risk or overcome private information, for example. A model of the dynamics of technology adoption and the evolution of financial instruments that support such adoption is presented. Early adoption may be required for financial markets to learn the technology; once learned, financial innovation boosts adoption further. Financial learning emerges as a source of technological diffusion. The analysis...
free text keywords: Technology adoption; financial innovation; learning, Technology adoption, financial innovation, learning., jel:G20, jel:N20, jel:O30

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We next verify that, with θ2 = 1, r = 4 and q = 0.6, the previous inequality is satisfied, indicating a violation of the incentive compability constraint.

Using the expression for l from (11), the left-hand side totals

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publication . Preprint . 2005


Ana Fernandes;