Archive for July 9th, 2021

The impact of machine learning and big data on credit markets: Competition between banks and fintechs

July 9, 2021

Peter Eccles, Paul Grout, Paolo Siciliani and Anna (Ania) Zalewska in this Bank of England working paper:

There is evidence that machine learning (ML) can improve the screening of risky borrowers, but the empirical literature gives diverse answers as to the impact of ML on credit markets. We provide a model in which traditional banks compete with fintech (innovative) banks that screen borrowers using ML technology and show that the impact of the adoption of the ML technology on credit markets depends on the characteristics of the market (eg borrower mix, cost of innovation, the intensity of competition, precision of the innovative technology, etc.).

We provide a series of scenarios. For example, we show that if implementing ML technology is relatively expensive and lower-risk borrowers are a significant proportion of all risky borrowers, then all risky borrowers will be worse off following the introduction of ML, even when the lower-risk borrowers can be separated perfectly from others.

At the other extreme, we show that if costs of implementing ML are low and there are few lower-risk borrowers, then lower-risk borrowers gain from the introduction of ML, at the expense of higher-risk and safe borrowers. Implications for policy, including the potential for tension between micro and macroprudential policies, are explored.

 

Divergence in bankruptcy law across advanced and developing economies

July 9, 2021

Simeon Djankov and Eva (Yiwen) Zhang in this piece:

Macron Commission on challenges facing French economy

July 9, 2021

French President Emmanuel Macron set up a commission under Jean Tirole and Olivier Blanchard to study economic challenges facing France. The Commission submitted its report:

Responding to the global challenges facing our societies requires new analytical frameworks and the emergence of new ideas, especially in the aftermath of the global health crisis. The President of the Republic asked Olivier Blanchard, Professor Emeritus at MIT, and Jean Tirole, Honorary President of the Toulouse School of Economics, to chair a commission of renowned international experts, supported by France Stratégie.

The committee focused on three long-term structural challenges: climate change, economic inequality and demographic change. Their work led to the production of a detailed report on these three challenges.

Climate change: time to act

The work of the IPCC has highlighted the role of human activities in climate change and the importance of acting now to limit the rise in temperatures to less than 2°C compared to the pre-industrial era. With this objective in mind, and following the signing of the Paris Agreement in 2015, France has set itself the objective of being carbon neutral by 2050. By committing today to ambitious policies and setting clear and credible milestones, France and Europe can play a leading role in international climate action. The commission, led by Mar Reguant, Associate Professor of Economics at Northwestern University, Illinois, and Christian Gollier, Professor and Director General of the Toulouse School of Economics (TSE), presented an analytical framework and proposals to accelerate the achievement of these goals.

Economic inequality and insecurity: measures for an inclusive economy

Equal opportunities, social protection, fair and efficient tax and social redistribution… Even if France is in a better position than most other countries, in order to ensure that economic opportunities benefit as many people as possible and are fairly distributed, France must act on several fronts and at different stages of people’s economic lives. The commission, led by Stefanie Stantcheva, Professor of Economics at Harvard University, and Dani Rodrik, Professor of Political Economy at the John F. Kennedy School of Government, Harvard University, makes the case and sets out a framework for good policy.

Facing demographic change: ageing, health and immigration

Ageing implies finding a fair and efficient balance between periods of employment and retirement. To achieve this, it is necessary to modernise the pension system, but also to support older people in their activities. This includes strengthening vocational training and the prevention and treatment of chronic diseases. Axel Börsch-Supan, Director of the Max Planck Institute for Social Law and Social Policy, Munich, Claudia Diehl, Professor at the Munk School of the University of Konstanz, and Carol Propper, Professor of Economics at the Imperial College Business School in London, have examined the facts and their perception before drawing up a series of recommendations.

Interview of the duo.

Dani Rodrik and Stefanie Stantcheva in this Proj Synd article:

Just as the pandemic was gathering pace in early 2020, French President Emmanuel Macron set up an international commission of economists to assess longer-term challenges and make policy proposals. While some of the recommendations are specific to France, many (if not most) are relevant to other advanced economies as well.

 


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