Thursday, October 16, 2008

Arrow in the Guardian on the financial crisis

Economists are accustomed to think of markets as being public goods, but Ken Arrow writes that they may have negative externalities if they increase asymmetric information, and generally make reliable understanding harder to come by:

"the root is this conflict between the genuine social value of increased variety and spread of risk-bearing securities and the limits imposed by the growing difficulty of understanding the underlying risks imposed by growing complexity."

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