Using distinct features of corporate bond exchange-traded funds (ETFs), I find that financial innovation has a significant and long-term positive valuation impact on the systemically important underlying securities. A one standard deviation increase in ETF ownership reduces high-yield and investment-grade bond spreads by 20.3 and 9.2 basis points, respectively, implying an average monthly price increase of 1.03% and 0.75%. Two novel quasi-natural experiments exploit exogenous changes in ETF eligibility to confirm the effect. Examining theoretical explanations for the effect, I find that ETFs decrease liquidity trader participation, increase institutional ownership, and insignificantly or negatively impact the liquidity of individual bonds

During the academic year, 1979-80, over 2,500 students studying first-year economics in nineteen U.K. universities and polytechnics were involved in a research project, the aim of which was to attempt to assess the efficacy of innovative teaching techniques in basic economics. The new techniques included were TIPS (see Allen C. Kelley, 1968), Cases, Programmed Learning, and Macrosimulations. Course packages were constructed, combining innovative and conventional techniques in different proportions. Each course package was designed within the overall objectives of a research design intended to generate a data matrix with sufficient observations in each cell to test the impact of various teaching techniques on different types of students in different institutional settings. Three conventional courses which did not utilize the innovative techniques were included to provide norming data. The common three-hour final examination, which yielded several measures of output, consisted of 20 multiple choice questions to measure knowledge of concepts and simple to intermediate applications, 1 problem-case to measure complex applications and analysis, 1 micro essay and 1 macro essay to measure synthesis and evaluation. There was no choice in the selection of questions to be answered. To ensure that the case and essay marks were consistent across institutions, each paper was regraded by one experienced university lecturer and a sample regraded for a third time to test his consistency. In the three years prior to the experimental year, a total of 26 pilot courses were run in seven institutions to solve logistics problems. Based on the pilot studies, participating institutions adopted one of three broad strategies: (i) the conventional course was scrapped and innovative techniques were substituted for tutorials and essays-complete substitution; (ii) conventional inputs were reduced and innovative techniques were substituted-partial substitution; (iii) innovative techniques were added to existing conventional inputs-add on. Since each teaching technique has a price tag, the strategies produced widely varying course costs, average total cost per student, and marginal cost. An indication of the scope for cost variation can be gained from the fact that the typical conventional first-year course containing 300 students would require 3 lectures and 30 tutorial hours per week (typically there are 10 students per tutorial). In contrast to the use of graduate students in beginning economics tutorials in the United States, tutorials in the United Kingdom are usually shared among all faculty members. A tutorial hour counts as a full contact hour in calculating teaching loads. Thus the opportunity cost of the conventional tutorial system in the United Kingdom could be as high as 7 or 8 upper level courses. Some innovative courses were implemented which scrapped the labor-intensive weekly tutorial system and substituted TIPS, Cases, and one or two hours of class remedial tutorials which students could attend at their own discretion. A comparative institutional cost model was used to derive average and marginal costs. The model included faculty inputs at average U.K. rates, and assumed a 10 hours per week teaching load, and 30 percent of time devoted to research; items such as course as*The Esmee Fairbairn Research Centre, Heriot-Watt University, Edinburgh. Our research was funded by the Department of Education and Science in the U.K., and The Esmee Fairbairn Charitable Trust

This paper explores the potential role of anti-takeover provisions (ATPs) in long-term value creation. Using a change in the legal environment in Delaware as an exogenous event, we document that a subset of firms with a relatively longer term focus (innovative firms) benefit from ATPs. Particularly, these firms experience an increase in Tobin's Q following a state law change in Delaware that increases the effectiveness of ATPs in defending against hostile takeovers. This increase is greater than that for non-innovative firms in Delaware as well as for innovative firms outside Delaware. Furthermore, the innovative firms in Delaware experience a stronger positive market reaction around the state law change dates, relative to other firms. Finally, in a cross-sectional setting we find that innovative firms with above-average takeover protection outperform other firms and are less likely to engage in harmful real earnings management. Taken together, these results provide empirical evidence of potential benefits of ATPs and help explain why such protection continues to be prevalent in the United States

The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country's high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country's equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies

We argue that a more individualist culture leads to more innovation and to higher growth because of the social status rewards associated with innovation in that culture. We use data on the frequency of particular genes associated with collectivist cultures, as well as a measure of distance in terms of frequencies of blood types, and historic prevalence of pathogens to instrument individualism scores. The relationship between individualism and innovation/growth remains strong even after controlling for institutions and other potentially confounding factors. We also provide evidence consistent with two-way causality between culture and institutions

Weather is a key source of income risk, especially in emerging market economies. This paper uses a randomized controlled trial involving Indian farmers to study how an innovative rainfall insurance product affects production decisions. We find that insurance provision induces farmers to invest more in higher-return but rainfall-sensitive cash crops, particularly among educated farmers. This shift in behavior occurs ex ante, when realized monsoon rainfall is still uncertain. Our results suggest that financial innovation can mitigate the real effects of uninsured production risk

We study contests for innovation with learning about the innovation’s feasibility and opponents’ outcomes. We characterize contests that maximize innovation when the designer chooses a prize-sharing scheme and a disclosure policy. A “public winner-takes-all” contest dominates public contests—where any success is immediately disclosed—with any other prize-sharing scheme as well as winner-takes-all contests with any other disclosure policy. Yet, jointly modifying prize sharing and disclosure can increase innovation. In a broad class of mechanisms, it is optimal to share the prize with disclosure following a certain number of successes; under simple conditions, a “hidden equal-sharing” contest is optimal

Weather is a key source of income risk for many firms and households, particularly in emerging market economies. This paper studies how an innovative risk management instrument for hedging rainfall risk affects production decisions among a sample of Indian agricultural firms, using a randomized controlled trial approach. We find that the provision of insurance induces farmers to shift production towards higher-return but higher-risk cash crops, particularly amongst more-educated farmers. Our results support the view that financial innovation may help mitigate the real effects of uninsured production risk. In a second experiment we elicit willingness to pay for insurance policies that differ in their contract terms, using the Becker-DeGroot-Marshak mechanism. Willingness-to-pay is increasing in the actuarial value of the insurance, but substantially less than one-for-one, suggesting that farmers’ valuations are inconsistent with a fully rational benchmark

Conditional cash transfer (CCT) programs innovate by conditioning transfers to poor families on investments in the human capital of children and other family members. The Mexican CCT program Progresa/Oportunidades began in 1997 and has served as a model for many of the now over sixty countries with CCTs around the world, in large part due to its initial evaluation with an experimental design and numerous follow-up studies. This article reviews the literature on the development, evaluation, and findings of Progresa/Oportunidades, summarizing what is known about program effects, taking into account corrections for multiple-hypothesis testing