The Economics of Finance
General Director:
Kenneth J. Arrow, Stanford University
Co-director:
Eyal Winter, The Hebrew University of Jerusalem
Virtually all business firms require the raising of capital from outside sources to finance investments, short term and long term. Lenders on the other hand want flexibility, in particular, the ability to turn the investments into cash to buy goods or make other investments. This creates the need for markets for securities, to achieve liquidity. Since risks are inevitable in business and since lenders and borrowers have different information on risks, the analysis of finance inevitably draws on the economic theories of risk-bearing and of asymmetric information. These basic principles when applied to the world of finance give rise to very rich and complex theories of individual behavior and of market equilibrium. More than in any other field of economics, the theories in turn have had profound effect on the workings of the markets, in particular, the development of new kinds of securities.
Speakers:
Franklin Allen, Pennsylvania University
Patrick Bolton, Princeton University
David Easley, Cornell University
Haim Levy, The Hebrew University of Jerusalem
With the support of the Center for the Study of Rationality
