On October 20, 2023, the third edition of our CEPR Conference Series on the Political Economy of Finance took place in the beautiful Wereldmuseum in Rotterdam.
This edition gathered a great lineup of scholars to discuss frontier research on the interactions between firms’ political power, their stakeholders and society at large.
One of the highlights of the conference was certainly Luigis Zingales’s (Chicago Booth) keynote lecture on “Reforming Capitalism.” Acknowledging that capitalism has brought enormous prosperity in the last 150 years, his lecture emphasized significant concerns of the rising power of large corporations in recent years. He pointed out key problems driving a wedge between firm’s operations and the common good: high-powered incentives, amoral drift and biased objectives of corporate leaders. Then he proposed some remedies.
The first is to limit high power incentives and rethink the mantra that “what matters is not how much you pay but how you pay” or “the more incentive-based pay is the better.” The second is a change in the nature of fiduciary duty, both at corporate and institutional investor levels, to allow societal values to be considered. The third is shareholder democracy, empowering shareholders in decision-making whenever there is a trade-off between profit motives and social benefits. And the last is about an objective for corporations to explicitly endorse their strategies with a large social impact (“sunlight is the best disinfectant”). These ideas are the premise of a book in preparation with Oliver Hart (Harvard). More to come soon!
The program featured six fascinating papers. We started the day with two papers that explored the interaction between sustainable investment strategies and the political support for environmental regulation. In a theoretical contribution Adlai Fisher (UBC Sauder School of Business) showed how divestment by institution investors can shift voters policy preference. Focusing on retail investors, Stefano Ramelli (University of St.Gallen) presented experimental findings that suggest sustainable investing does not appear to crowd out political engagement for environmental policies.
A series of financial history papers helped us develop a better understanding of the workings of the financial markets through the lens of important historical events. Zooming in on the role of redistribution in democratic societies Max Miller (Harvard) discussed how democratizations lead to elevated risk premia (see paper here). Guillaume Vuillemey (HEC Paris) presented evidence that points to the role of investors demand for safe investment as a key force in shaping the political consensus to liberalize firm’s access to limited liability. In the study of the limits to arbitrage during the Siege of Paris, Saumitra Jha (Stanford) helped us understand how differences in political believes may drive asset mispricing in fragmented financial markets (as well as the key role of balloons and postal pigeons in maintaining the communication during war in the 19th century).
Turning the lens from history onto the current state of academic research in economics and finance, Chong Shu (University of Utah) showed us insightful statistics on how our findings are used by think tanks with different political leanings.
The conference is part of our PolEconFin initiative, which seeks to provide a meeting point for theorists and empiricists with shared interests in the political economy of finance and build a research community. Interested? Please join us, we are looking forward to your involvement in this initiative!
We hope to see you at the next edition of the CEPR Conference Series on the Political Economy of Finance, which will be organized by the Stigler Center in 2024. Stay tuned!