nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2018‒06‒11
twenty papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. The Impact of Mobile App Failures on Online and Offline Purchases By Narang, Unnati; Shankar, Venkatesh; Narayanan, Sridhar
  2. Competition for retail deposits between commercial banks and non-bank operators: a two-sided platform analysis By Siciliani, Paolo
  3. The Platform Economy and Regulatory Disruption: Estimating the Impact on Municipal Revenue in Toronto By Zachary Spicer
  4. The 4th Industrial Revolution Strategy and Cooperation in China, India and Singapore By Cho, Choongjae; Song, Youngchu
  5. Unbundling the Incumbent and Entry into Fiber: Evidence from France By Marc Bourreau; Lukasz Grzybowski; Maude Hasbi
  6. Wie die Digitale Transformation der Wirtschaft gelingt By Bertschek, Irene; Briglauer, Wolfgang
  7. E-commerce in agriculture: The case of crop protection product purchases in a discrete choice experiment By Fecke, Wilm; Danne, Michael; Mußhoff, Oliver
  8. Unemployment and online labor By Borchert, Kathrin; Hirth, Matthias; Kummer, Michael E.; Laitenberger, Ulrich; Slivko, Olga; Viete, Steffen
  9. Transformación digital y consecuencias para el empleo en España. Una revisión de la investigación reciente By Lucas Gortazar
  10. Trust and Disintermediation: Evidence from an Online Freelance Marketplace By Grace Gu; Feng Zhu
  11. Financial Inclusion, Regulation, Financial Literacy, and Financial Education in Tajikistan By Mogilevskii, Roman; Asadov, Shokhboz
  12. Investor attention and technology salience: Does personal data related innovation boost firm value? By Koski, Heli; Luukkonen, Juha
  13. “Free” Internet Content: Web 1.0, Web 2.0, and the Sources of Economic Growth By Nakamura, Leonard I.; Samuels, Jon; Soloveichik, Rachel
  14. Should We Fear the Robot Revolution? (The Correct Answer is Yes) By Andrew Berg; Edward F Buffie; Luis-Felipe Zanna
  15. Conference on Technology-Enabled Disruption: Implications for Business, Labor Markets, and Monetary Policy By Harker, Patrick T.
  16. Uncorking Expert Reviews with Social Media: A Case Study Served with Wine By Alex Albright; Peter Pedroni; Stephen Sheppard
  17. Why the initial regulation of financial innovations is decisive: Regulatory arbitrage and off-balance-sheet leasing in Germany By Friedrich, Jan; Thiemann, Matthias
  18. "Twenty Years after the Fall of the Berlin Wall: Rethinking the Role of Money and Markets in the Global Economy" By W. Lee Hoskins; Walker F. Todd
  19. Lessons from historical monetary unions - is the European monetary union making the same mistakes? By Ryan, John; Loughlin, John
  20. Cryptocurrency Equilibria Through Game Theoretic Optimization By Carey Caginalp; Gunduz Caginalp

  1. By: Narang, Unnati (?); Shankar, Venkatesh (?); Narayanan, Sridhar (Stanford Universtiy)
    Abstract: Over half of all shopping journeys start with the mobile channel. In particular, the presence of a branded mobile app significantly influences shopping across channels. However, a majority of app users decrease app usage or even abandon an app, in part, due to app service failure(s). Do app failures influence purchases made within the online channel? Are there any spillover effects across other channels? What factors moderate the within and across channel effects? We leverage exogenous systemwide failure shocks in a large multichannel retailer's mobile app and related data to examine the impact of app failures on purchases in all channels using a differences-in-differences approach. We investigate heterogeneity among shoppers using a set of moderators of these effects based on insights from prior research. Our analysis reveals that although app failures have a significant overall negative effect on shoppers' frequency, quantity, and monetary value of purchases across channels, the effects are heterogeneous across channels and shoppers. Interestingly, the overall decreases in purchases across channels are driven by purchase reductions in brick and mortar stores and not in digital channels. Furthermore, we find that shoppers with a stronger relationship with the retailer, greater digital channel use, and who experienced failures less attributable to the retailer, are less sensitive to app failures. We outline failure preventive and recovery strategies for app providers based on the insights from this study.
    Date: 2018–03
  2. By: Siciliani, Paolo (Bank of England)
    Abstract: Commercial banks’ mainstream business model, which is reliant on a stable supply of retail deposits, continues to be challenged by new and innovative sources of non-bank competition. This paper examines the implications of one such source: a substitute for commercial banks’ personal and saving accounts that provides a safer money storage option thanks to access to a central bank’s balance sheet. I model competition for retail deposits between a bank and a non-bank payment service operator by adopting the two-sided platform framework to capture the payment functionality between consumers and merchants under various configurations. I show that banks’ mainstream business model is most vulnerable when consumers perceive the two service providers as close substitutes; they have the option to sign up with both service providers; their distribution of deposit is skewed; and they are not allowed to make payments across platforms.
    Keywords: Two-sided platforms; retail deposit; non-bank payment service operator; central bank digital currency
    JEL: D43 G21 L15 L20 L50
    Date: 2018–05–25
  3. By: Zachary Spicer (University of Toronto)
    Abstract: Platform economy firms such as Uber and Airbnb have attracted attention in cities around the world, given the impact of these firms on the existing taxi industry or the rental market, but little has been written about the effects of the platform economy on municipal fiscal health. This paper estimates the regulatory cost and potential revenue opportunities of the platform economy, examining the impact of three firms in Toronto: Uber, Airbnb, and Rover. Overall, I expect that the approaches that the City of Toronto has taken to regulate the activities of firms, such as Uber and Airbnb, will be revenue-neutral. Since neither of these services directly competes with other city services, I examine only the costs of the regulatory scheme put in place. The third platform firm, Rover, does compete with the City’s Green P parking service. However, Rover’s operations are not at the scale necessary to meaningfully disrupt Green P services. If regulated effectively, the platform economy would have a minimal impact on municipal revenue. However, regulatory delay has a cost. The lesson learned from Toronto’s experience is to not delay the creation of a regulatory regime. Municipalities need to be proactive in researching the appropriate regulatory approach and matching the regulatory reach to the platform in question, namely a digital regulatory approach for a digital service.
    Keywords: platform economy, regulatory disruption, municipal revenue, Toronto
    JEL: H25 H71 O33 O38
    Date: 2018–06
  4. By: Cho, Choongjae (Korea Institute for International Economic Policy); Song, Youngchu (Korea Institute for International Economic Policy)
    Abstract: This study focuses on analyzing China, India and Singapore's driving capability for the 4th IR, related national policies, plans, or strategies, etc. In addition, this study suggests implications and directions for the development of policies related to the 4th IR by the Korean government and the strengthening of cooperation with each of these three countries. In conclusion, we presents the following cooperation directions and policy tasks in respect to the three countries above. First, we need to enhance selective and strategic cooperation with China in the aspects of competition and response via the following strategies: 1) strengthening R&D projects for original technologies in new technology and industry areas, thus focusing on early commercialization and standardization; 2) developing strategies to actively utilize digitalized consumers in China and protecting domestic digital consumers and cross-border personal information; 3) advancing into the areas of 5G, smart manufacturing and robot-related fields in China; 4) enhancing collaboration in terms of internationalization of innovative entrepreneurial ecosystems; 5) pursuing agreements to address the issues of technology deception and technical protection. Second, we need to enhance all-round convergence and win-win cooperation with India through the following channels: 1) early enhancement of core SW technologies such as artificial intelligence, embedded and cloud computing via using India's excellent SW, IT service capability; 2) taking advantage of India's Big Data resources, including Aadhaar, the world's largest digital personal authentication system; 3) participating in smart manufacturing, digital infrastructure development with new technologies and products related to smart city initiatives, cooperation between start-ups in both countries; 4) to do this, we will need to consider utilizing the Vision Group of Korea-India Future Strategy; and 5) creating a Korea-India Innovation Venture Fund. Lastly, with Singapore, we need to strengthen innovation cooperation in policies and systems, education, R&D, and entrepreneurial ecosystems that underpin the 4th IR.
    Keywords: 4th industrial revolution strategy; China; India; Singapore
    Date: 2018–04–03
  5. By: Marc Bourreau; Lukasz Grzybowski; Maude Hasbi
    Abstract: We use panel data on 36,104 municipalities in metropolitan France over the period 2010-2014 to estimate two models of entry into local markets by: (i) alternative operators using wholesale access to the legacy copper network via local loop unbundling (LLU), and (ii) the incumbent and two alternative operators using the fiber technology. We find that a higher number of LLU competitors, and hence a less concentrated local market, has a positive impact on entry by fiber operators. Moreover, the presence of upgraded cable network in the local municipality stimulates fiber deployment. However, firms may choose to upgrade copper lines instead of investing in fiber networks. We use the estimates to calculate entry thresholds into local markets, which are substantially lower for broadband provision via LLU than via fiber and decrease over time. Fiber deployment becomes cheaper over time, but according to our estimates it will remain unprofitable for the vast majority of municipalities in France within the next years.
    Keywords: fiber broadband, local loop unbundling, market entry
    JEL: K23 L13 L51 L96
    Date: 2018
  6. By: Bertschek, Irene; Briglauer, Wolfgang
    Abstract: Die Digitale Transformation gilt als eine der großen Herausforderungen unserer Zeit. Schnelles Internet, mobile Endgeräte, intelligente Softwarealgorithmen und die Speicherung und Verarbeitung großer Datenmengen verändern wirtschaftliche und gesellschaftliche Prozesse. Die zahlreichen Dimensionen der Digitalisierung machen die Transformation von Wirtschaft und Gesellschaft zu einem komplexen Unterfangen. Jedoch können die Chancen, die die Digitalisierung eröffnet, wie die Entwicklung neuer Produkte und Dienste oder die Steigerung der Produktivität, nur dann genutzt werden, wenn man sich den damit verbundenen Herausforderungen aktiv und gestalterisch stellt. Die neue Bundesregierung hat sich in ihrem Koalitionsvertrag zahlreiche und ambitionierte Ziele für die Digitalisierung gesetzt, die verschiedene gesellschaftliche und wirtschaftliche Bereiche und so gut wie alle Ministerien betreffen. Aus der Perspektive der Wirtschaft sind insbesondere drei Aspekte zentral: der weitere Ausbau der Breitbandinfrastruktur, die Unterstützung mittelständischer Unternehmen bei der Digitalisierung sowie die Stärkung digitaler Kompetenzen. In allen drei Bereichen hat Deutschland Nachholbedarf.
    Date: 2018
  7. By: Fecke, Wilm; Danne, Michael; Mußhoff, Oliver
    Abstract: The internet is playing an increasing role in the development of rural areas. For farmers in particular, reliable internet access creates opportunities concerning farm management decisions. Hence, the goal of this study was to investigate German farmers' willingness to buy inputs online. Primary data was collected by conducting a discrete choice experiment about the purchase of crop protection products. Selection decisions of 165 arable farmers were analyzed by a generalized multinomial logit model (GMNL) resulting in willingness to accept (WTA) space estimation. WTA estimates show that farmers are willing to switch to an online merchant if they are offered a significantly lower price. However, word-of-mouth-reputation and consultation offered via traditional media do not influence farmers' WTA for an online merchant. In contrast, delivery time significantly affects farmers' WTA for inputs purchased online. We also show that farmers' risk attitudes, prior online shopping experiences, and education are influential factors for the WTA for an online merchant. Surprisingly, age and farm size do not impact farmers' WTA. Since e-commerce has not been widely established in agriculture yet, these results are of great practical importance. The findings of this study give online merchants of agricultural inputs a first orientation for choosing appropriate marketing measures. Moreover, results are interesting for education policy.
    Keywords: Internet use,E-commerce,Input purchasing,Online merchants,German farmers
    Date: 2018
  8. By: Borchert, Kathrin; Hirth, Matthias; Kummer, Michael E.; Laitenberger, Ulrich; Slivko, Olga; Viete, Steffen
    Abstract: Online labor markets experienced a rapid growth in recent years. They allow for long-distance transactions and offer workers access to a potentially 'global' pool of labor demand. As such, they bear the potential to act as a substitute for shrinking local income opportunities. Using detailed U.S. data from a large online labor platform for microtasks, we study how local unemployment affects participation and work intensity online. We find that, at the extensive margin, an increase in commuting zone level unemployment is associated with more individuals joining the platform and becoming active in fulfilling tasks. At the intensive margin, our results show that with higher unemployment rates, online labor supply becomes more elastic. These results are driven by a decrease of the reservation wage during standard working hours. Finally, the effects are transient and do not translate to a permanent increase in platform participation by incumbent users. Our findings highlight that many workers consider online labor markets as a substitute to offline work for generating income, especially in periods of low local labor demand. However, the evidence also suggests that, despite their potential to attract workers, online markets for microtasks are currently not viable as a long run alternative for most workers.
    Keywords: Unemployment,Crowdworking,Online platform
    JEL: D29 D80 H41 J60 L17
    Date: 2018
  9. By: Lucas Gortazar
    Abstract: En este trabajo se revisa la literatura reciente sobre la incidencia de la digitalización de la economía en el empleo. Tras repasar brevemente la experiencia histórica sobre los efectos de anteriores revoluciones tecnológicas y el marco teórico de referencia, se revisa la evidencia empírica sobre el tema en Europa y Estados Unidos y se avanzan algunas propuestas de política para lidiar con los problemas que plantea la digitalización.
    Date: 2018–05
  10. By: Grace Gu (Harvard Business School); Feng Zhu (Harvard Business School, Technology and Operations Management Unit)
    Abstract: As an intermediary improves trust between two sides of its market to facilitate matching and transactions, it faces an increased risk of disintermediation: with sufficient trust, the two sides may circumvent the intermediary to avoid the intermediary's fees. We investigate the relationship between increased trust and disintermediation by leveraging a randomized control trial on a major online freelance marketplace. Our results show that enhanced trust increases the chance for high-quality freelancers to be hired. When the trust level is sufficiently high, however, it also increases disintermediation, which offsets the revenue gains from the increase in the hiring of high-quality freelancers. We also identify heterogeneity across clients and freelancers in their tendencies to disintermediate.
    Keywords: Disintermediation, Intermediary, Trust, Online Marketplace
    JEL: L14 L86 O33
    Date: 2018–05
  11. By: Mogilevskii, Roman (Asian Development Bank Institute); Asadov, Shokhboz (Asian Development Bank Institute)
    Abstract: We analyze financial inclusion, literacy, and education in Tajikistan. We discuss the progress in financial inclusion and the sector’s response to the major external shock associated with the sharp fall in Tajik labor migrants’ remittances. We analyze the policies dealing with different aspects of financial inclusion with a focus on the regulatory framework, penetration of new financial technologies, and the existing barriers to inclusion; and we give recommendations on how to improve financial inclusion and financial literacy in the country.
    Keywords: financial inclusion; financial literacy and education; Tajikistan
    JEL: G21 G28 O16
    Date: 2018–06–05
  12. By: Koski, Heli; Luukkonen, Juha
    Abstract: This paper empirically analyzes how markets value personal data related innovation in four prominent domains, in which firms’ potential to exploit value from data is identified to be considerable: finance, health, location-based services and artificial intelligence. We link the innovation economics literature to psychology-grounded financial economics theories of investor attention and salience theory. Our data from 117 large technology companies active in the ICT sector from the years 2007–2014 suggest that firms’ personal data related innovations and knowledge stocks in technology domains of location-based services and artificial intelligence contributed substantially to firm value. The premiums gained from personal data related innovation were particularly significant for data giants holding knowledge stocks in the location-based service domain. Our empirical results indicate that a strong positive relationship between personal data related knowledge stocks of the location-based services domain and firm value relates primarily to investor attention intensified during periods of media hype. Our data provide new insights into the market valuation of intangible assets: investors seem to overweight more salient right tails of firms’ knowledge stocks of emerging technologies while neglecting salient left tails.
    Keywords: Firm value, innovation, personal data, investor attention, saliency theory, technology salience
    JEL: D22 L2 O3
    Date: 2018–05–25
  13. By: Nakamura, Leonard I. (Federal Reserve Bank of Philadelphia); Samuels, Jon (Bureau of Economic Analysis); Soloveichik, Rachel (Bureau of Economic Analysis)
    Abstract: The Internet has evolved from Web 1.0, with static web pages and limited interactivity, to Web 2.0, with dynamic content that relies on user engagement. This change increased production costs significantly, but the price charged for Internet content has generally remained the same: zero. Because no transaction records the “purchase” of this content, its value is not reflected in measured growth and productivity. To capture the contribution of the “free” Internet, we model the provision of “free” content as a barter transaction between the content users and the content creators, and we value this transaction at production cost. When we incorporate this implicit transaction into U.S. gross domestic product (GDP), productivity, and household accounts, we find that including “free” content raises estimates of growth, but not nearly enough to reverse the recent slowdown.
    Keywords: Internet; productivity; advertising; marketing; measurement; GDP
    JEL: C82 L81 L82 M3 O3 O4
    Date: 2018–05–24
  14. By: Andrew Berg; Edward F Buffie; Luis-Felipe Zanna
    Abstract: We may be on the cusp of a “second industrial revolution” based on advances in artificial intelligence and robotics. We analyze the implications for inequality and output, using a model with two assumptions: “robot” capital is distinct from traditional capital in its degree of substitutability with human labor; and only capitalists and skilled workers save. We analyze a range of variants that reflect widely different views of how automation may transform the labor market. Our main results are surprisingly robust: automation is good for growth and bad for equality; in the benchmark model real wages fall in the short run and eventually rise, but “eventually” can easily take generations.
    Date: 2018–05–21
  15. By: Harker, Patrick T. (Federal Reserve Bank of Philadelphia)
    Abstract: Introductory Remarks: Panel on Broader Labor Market Implications of Technology-Enabled Disruption. Philadelphia Fed President Patrick T. Harker recently spoke in Dallas about advances in technology and how it's vitally important that we educate and train U.S. workers to meet the needs of a changing labor market.
    Keywords: labor markets; employment; technology; education
    Date: 2018–05–24
  16. By: Alex Albright (Harvard University); Peter Pedroni (Williams College); Stephen Sheppard (Williams College)
    Abstract: The growth of social media outlets in which individuals post opinions on publicly consumed goods provides an interesting and relatively unexplored area for examination of the role of crowd sourcing amateur opinions in areas traditionally relegated to experts. In this paper we use wine as an illustrative example to investigate the interaction between social media and expert reviews in the market for high end consumer goods. In particular, we exploit a novel data set constructed from the social media website CellarTracker, which is composed of the averaged individual reviews for 355 distinct wines on a quarterly basis from 2004 through 2017, and pair this with a similarly dimensioned panel of average auction prices for these wines as well as the reviews from three leading experts. We develop a signal extraction model to motivate the interaction between amateurs and experts in revealing a measure of the quality of the wine. The model is then used to motivate the adaptation of an empirical panel structural VAR approach based on Pedroni (2013) by embedding the expert reviews as an event analysis within the panel VAR, which is used to decompose information into components that signal the quality of the liquid in the bottle versus other aspects of the wine that are valued by the market. The approach also allows us to decompose the influence of the expert reviews into components associated with what we define as the quality of the wine versus the pure reputation effect of the expert. The results on expert reviews are consistent with the idea that experts can substantially impact prices through channels other than their signals of quality.
    Keywords: Luxury goods, differentiated goods, information asymmetry, social media, wine
    JEL: D83 L86 L15 L66
    Date: 2018–06
  17. By: Friedrich, Jan; Thiemann, Matthias
    Abstract: This policy letter provides evidence for the crucial importance of the initial regulatory treatment for the further development of financial innovations by exploring the emergence and initial legal framing of off-balance-sheet leasing in Germany. Due to a missing legal framework, lease contracts occurred as an innovative social practice of off-balance-sheet financing. However, this lacking legal framing impeded the development of this financial innovation as it also created legal uncertainties. This was about to change after the initial legal framing of leasing in the 1970's which eliminated those legal uncertainties and off-balance-sheet leasing entered into a stunning period of growth while laying the foundation of a regulatory resiliency against efforts that seek to abandon the off-balance-sheet treatment of leases. As the initial legal framing is crucial for the further development of a financial innovation, we propose the French approach for the initial vindication of new financial products in which the principles-based rules are aligned with the capabilities of regulators to intervene, even when a financial innovation complies with the letter of the law. In this way, regulators could regulate the frontier of financial innovations and weed out those which are entirely or mainly driven by regulatory arbitrage considerations while maintaining the beneficial elements of those products.
    Keywords: financial innovations,regulation,regulatory arbitrage,leasing
    Date: 2018
  18. By: W. Lee Hoskins; Walker F. Todd
    Abstract: Many of the hopes arising from the 1989 fall of the Berlin Wall were still unrealized in 2010 and remain so today, especially in monetary policy and financial supervision. The major players that helped bring on the 2008 financial crisis still exist, with rising levels of moral hazard, including Fannie Mae, Freddie Mac, the too-big-to-fail banks, and even AIG. In monetary policy, the Federal Reserve has only just begun to reduce its vastly increased balance sheet, while the European Central Bank has yet to begin. The Dodd-Frank Act of 2010 imposed new conditions on but did not contract the greatly expanded federal safety net and failed to reduce the substantial increase in moral hazard. The larger budget deficits since 2008 were simply decisions to spend at higher levels instead of rational responses to the crisis. Only an increased reliance on market discipline in financial services, avoidance of Federal Reserve market interventions to rescue financial players while doing little or nothing for households and firms, and elimination of the Treasury's backdoor borrowings that conceal the real costs of increasing budget deficits can enable the American public to achieve the meaningful improvements in living standards that were reasonably expected when the Berlin Wall fell.
    Keywords: Too Big To Fail; Moral Hazard; Section 13(3); Credit Allocation; Domestic Price Level Stability
    JEL: E42 E52 E58 E61 E63
    Date: 2018–06
  19. By: Ryan, John; Loughlin, John
    Abstract: This article examines three historical monetary unions: the Latin Monetary Union (LMU), the Scandinavian Monetary Union (SMU), and the Austro-Hungarian Monetary Union (AHMU) in an attempt to derive possible lessons for the European Monetary Union (EMU). The term ‘monetary union’ can be defined either narrowly or broadly depending on how closely it conforms to Mundell’s notion of ‘Optimal Currency Area’. After examining each of the historical monetary unions from this perspective, the article concludes that none of them ever truly conformed to Mundell’s concept, nor does the EMU. Nevertheless, the article argues that some lessons may be learned from these historical experiences. First, it is necessary that there exist robust institutions such as a common central bank and a unified fiscal policy in order to withstand external shocks. The three early unions could not withstand the shock of WWI. Another important lesson is that continuing national rivalries can undermine any monetary union.
    Keywords: Latin monetary union; Scandinavian monetary union; Austro-Hungarian monetary union; European monetary union; Eurozone crisis; European Central Bank
    JEL: E42 E50 E52 F02 F50
    Date: 2018–04–04
  20. By: Carey Caginalp; Gunduz Caginalp
    Abstract: Optimization methods are used to determine equilibria of investment in cryptocurrencies. The basic assumptions involve existence of a core group (the "wealthy") that fears the loss of substantial assets through government seizure. Speculators constitute another group that tends to introduce volatility and risk for the wealthy. The wealthy must divide their assets between the home currency and the cryptocurrency, while the government decides on the probability of seizing a fraction the assets of this group. Under the assumption that each group exhibits risk aversion through a utility function, we establish the existence and uniqueness of Nash equilibrium. Also examined is the more realistic optimization problem in which the government policy cannot be reversed, while the wealthy can adjust their allocation in reaction to the government's designation of probability. The methodology leads to an understanding the equilibrium market capitalization of cryptocurrencies.
    Date: 2018–05

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