nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2020‒02‒10
twenty papers chosen by

  1. The other side of the Coin: Risks of the Libra Blockchain By Louis Abraham; Dominique Guegan
  2. Antitrust and Restrictions on Privacy in the Digital Economy By Nicholas Economides; Ioannis Lianos
  3. Enhancing ICT for Insurance in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  4. Using Networks and Partial Differential Equations to Predict Bitcoin Price By Yufang Wang; Haiyan Wang
  5. User Trusts: Broad-Based Ownership for Online Platforms By Schneider, Nathan
  6. How Will Emerging Computers Affect Older Workers by 2040? By Anek Belbase; Andrew D. Eschtruth
  7. Financial Innovation and Additionality : The Power of Economic Analysis and Data Analytics By Abraham,Facundo; Schmukler,Sergio L.; Tessada, José
  8. Remittances, the Diffusion of Information and Industrialisation in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  9. Information Design in Blockchain: A Role of Trusted Intermediaries By Hitoshi Matsushima
  10. "Piracy as promotion? The Importance of Diffusion in the Music Industry" By Daniel Marszalec; María Martín-Rodríguez
  11. Chapter 13 - Sharing strategies: carsharing, shared micromobility (bikesharing and scooter sharing), transportation network companies, microtransit, and other innovative mobility modes By Shaheen, Susan PhD; Cohen, Adam; Chan, Nelson; Bansal, Apaar
  12. Symmetric and asymmetric effects of exchange rates on money demand: Empirical evidence from Vietnam By Sy Hoa Ho; Jamel Saadaoui
  13. Forecasting Realized Volatility of Bitcoin: The Role of the Trade War By Elie Bouri; Konstantinos Gkillas; Rangan Gupta; Christian Pierdzioch
  14. The impact of consumer protection in the digital age: Evidence from the European Union By Rösner, Anja; Haucap, Justus; Heimeshoff, Ulrich
  15. The Future of Work : Race with-not against-the Machine By Chuah,Lay Lian; Loayza,Norman V.; Schmillen,Achim Daniel
  16. The digital layer: How innovative firms relate on the web By Krüger, Miriam; Kinne, Jan; Lenz, David; Resch, Bernd
  17. Economists’ Tunney Act Reply Comments on the DOJ’s Proposed Remedy in the Sprint/T-Mobile Merger Proceeding By Nicholas Economides; John Kwoka; Thomas Philippon; Robert Seamans; Hal Singer; Marshall Steinbaum; Lawrence J. White
  18. The Editor vs. the Algorithm: Returns to Data and Externalities in Online News By Jörg Claussen; Christian Peukert; Ananya Sen
  19. Robo-Advisors : Investing through Machines By Abraham,Facundo; Schmukler,Sergio L.; Tessada,Jose
  20. Big Tech Mergers By Massimo Motta; Martin Peitz

  1. By: Louis Abraham (X - École polytechnique); Dominique Guegan (UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, University of Ca’ Foscari [Venice, Italy])
    Abstract: Libra was presented as a cryptocurrency on June 18, 2019 by Facebook. On the same day, Facebook announced plans for Calibra, a subsidiary in charge of the development of an electronic wallet and financial services. In view of the primary risk of sovereignty posed by the creation of Libra, the Central Banks quickly took very clear positions against the project and adressed a lot of questions to the responsible of the project focusing on regulation aspects and national sovereignty. The purpose of this paper is to provide a holistic analysis of the project to encompass several aspects of its implementation and the issues it raises. We address a set of questions that are part of the cryptocurrency environment and blockchain technology that supports the Libra project. We identify the main risks considering at the same time: political risk, financial risks, economical risks, technological risks and ethics focusing on the governance of the project based on two levels: one for the Association and the other for the Libra Blockchain. We emphazise the difficulty to regulate such a project as soon as it will depend on several countries whose legislations are very different. The future of this kind of project is discussed through the emergence of the Central Bank Digital Currencies.
    Keywords: Risk,Regulation,Libra,Blockchain Protocol,Centrel Bank Digital Currency,Cryptocurrency,Governance
    Date: 2019–10
  2. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: We present a model of a market failure based on a requirement provision by digital platforms in the acquisition of personal information from users of other products/services. We establish the economic harm from the market failure and the requirement using traditional antitrust methodology. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information would create a functioning market for personal information that would benefit users. Even though market harm is established under the assumption that consumers are perfectly informed about the value of their privacy, we show that when users are not well informed, there can be additional harms to this market failure.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2020–01
  3. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study assesses how enhancing information and communication technology (ICT) affects life insurance and non-life insurance in a panel of forty-eight African countries with data for the period 2004-2014. The adopted ICT dynamics are: mobile phone penetration, internet penetration and fixed broadband subscriptions. The empirical evidence is based on Generalized Method of Moments. The results show that enhancing mobile phone penetration and fixed broadband subscriptions has a positive net effect on life insurance consumption while enhancing fixed broadband subscriptions also has a positive net impact of on non-life insurance penetration.
    Keywords: Insurance; Information technology
    JEL: I28 I30 L96 O16 O55
    Date: 2019–01
  4. By: Yufang Wang; Haiyan Wang
    Abstract: Over the past decade, the blockchain technology and its Bitcoin cryptocurrency have received considerable attention. Bitcoin has experienced significant price swings in daily and long-term valuations. In this paper, we propose a partial differential equation (PDE) model on the bitcoin transaction network for predicting bitcoin price. Through analysis of bitcoin subgraphs or chainlets, the PDE model captures the influence of transaction patterns on bitcoin price over time and combines the effect of all chainlet clusters. In addition, Google Trends Index is incorporated to the PDE model to reflect the effect of bitcoin market sentiment. The experiment shows that the average accuracy of daily bitcoin price prediction is 0.82 for 362 consecutive days in 2017. The results demonstrate the PDE model is capable of predicting bitcoin price. The paper is the first attempt to apply a PDE model to the bitcoin transaction network for predicting bitcoin price.
    Date: 2020–01
  5. By: Schneider, Nathan (University of Colorado Boulder)
    Abstract: This essay introduces what promise a novel broad-based capital strategy—trusts serving platform users—might hold for the online economy, especially as an enabler of more widespread, organized, and democratic user accountability. It draws on lessons from the experience of employee ownership alongside emerging opportunities for other kinds of broad-based ownership structures. User-oriented trusts could enable meaningful co-governance and profit sharing among essential stakeholders, a prospect that merits research and experimentation.
    Date: 2020–02–06
  6. By: Anek Belbase; Andrew D. Eschtruth
    Abstract: Technological change is not new, particularly to the United States. Founded during the dawn of the Industrial Revolution, the country has been a leader in new technologies – from the cotton gin and the lightbulb to the personal computer and the internet. These advances have enabled people to lead lifestyles today that would have been unimaginable a century ago. But progress has not been painless for workers, as each wave of innovation has created laborsaving machines that have disrupted jobs. Each time, workers replaced by machines have faced difficult short-term transitions, but, through retraining and career changes, have eventually found jobs in rising industries. Today, as computer-powered machines perform tasks that would have seemed impossible only a decade ago, policymakers and workers alike are beginning to wonder – will workers continue to be able to adapt or is this time fundamentally different? The effect of new machines on older workers is of particular concern, because older workers make up a growing share of the workforce and increasingly need to work until their late 60s to attain a secure retirement. This brief wraps up a three-part series on the effects of laborsaving machines on older workers. The first brief reviewed the impact of machines over the past two centuries, and the second brief examined how the recent rise of computers has affected older workers so far. The current brief turns to the near future and explores how emerging computers, with expanding capabilities that rely on artificial intelligence, might affect the job prospects of older workers over the next two decades. The brief proceeds as follows. The first section describes the unique features of emerging computer technology. The second section explains how the new computers might affect demand for workers based on occupation and education. The third section examines whether older workers might be uniquely affected. The final section concludes that age is unlikely to determine how workers will be impacted. Instead, workers’ education levels – which are now roughly similar by age group – and social skills – which tend to get better with age – will play important roles in how they fare.
    Date: 2020–01
  7. By: Abraham,Facundo; Schmukler,Sergio L.; Tessada, José
    Abstract: As public and private financial institutions innovate to expand the range of financial products that households and firms use, questions about the additionality of different services have become central. Additional financial services are those that are not already provided by the private sector and that create value added to the overall economy. To identify and measure the contribution of financial services, precise analytical techniques and data are essential. Measuring additionality is challenging but, to the extent that it can be done, it is helpful to assess the multiple effects of financial innovation on the consumers of financial products, the financial service providers, and the economy.
    Keywords: Governance Diagnostic Capacity Building,Economic Forecasting,Macroeconomic Management,Access to Finance,Conflict and Fragile States,Tertiary Education,Information Technology
    Date: 2019–06–01
  8. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study examines the role of information and communication technology (ICT) on remittances for industrialisation in a panel of 49 African countries for the period 1980-2014. The empirical evidence is based on three simultaneity-robust estimation techniques, namely: (i) Instrumental Fixed Effects (FE) in order to control for the unobserved heterogeneity; (ii) Generalised Method of Moments (GMM) to account for persistence in industrialisation; and (iii) Instrumental Quantile Regressions (QR) to control for initial levels of industrialisation. Our best estimators are from FE and QR estimations because the GMM regression outputs largely fail post-estimation diagnostic tests. The following findings are established: (i) There are positive marginal effects from the interaction between remittances and ICT in the FE regressions whereas there are negative marginal impacts from the interaction between remittances and ICT; (ii) Interactions between remittances and mobile phone penetration are positive in the bottom and 90th quantiles whereas the interaction between internet penetration and remittances is positive in the bottom and top quantiles of the industrialisation distribution. Overall, the role of ICT in remittances for industrialisation is much more apparent when existing levels of industrialisation are accounted for. The findings contribute to the debates on the importance of external flows and information infrastructure in economic growth as well as the relevance of remittances in driving economic development in environments where institutions are weak. The value of the study to scholars and policy makers also builds on the fact that the potential for ICT and remittances in Africa can be leveraged to address development challenges on the continent such as the low level of industrialisation.
    Keywords: Remittances; Industrialisation; ICT; Africa
    JEL: F24 F43 F63 O30 O55
    Date: 2019–01
  9. By: Hitoshi Matsushima (University of Tokyo)
    Abstract: This study clarifies that blockchain cannot replace the strategic value of trusted intermediaries, despite sufficient technological advancement for its implementation. Given the progress expected in the future, this study assumes that blockchain can implement various commitment devices for communication explored in the information design literature, without disclosing their details to anonymous record keepers. By considering revelation incentives explicitly, we show that substituting the verification task of players’ pre-owned private signals with a trusted intermediary can reduce transaction costs in liability, which cannot be achieved non-judicially by blockchain. Hence, trusted intermediaries play a significant role in executing information design through blockchain.
    Keywords: Blockchain, Information Design, Verification, Intermediary, Limited Liability
    JEL: D44 D82 D86 G20 L86
    Date: 2019–07
  10. By: Daniel Marszalec (Faculty of Economics, The University of Tokyo); María Martín-Rodríguez (Graduate Scho olofEconomics, Nagoya University)
    Abstract: We present a model of the music industry including artists, consumers and plat-forms. Artists are heterogeneous in their degree of ex-ante popularity and each one has two sources of income: songs and concerts. However, only for the unknown artists there is a link between the number of songs sold (diffusion) and the revenue from concerts. Copies of the songs of the artists are hosted in platforms. The for-prot platform chooses a positive price to sell high-quality copies, whereas the open platform offers low-quality copies for free. We compare the equilibrium outcomes and welfare with copyright and with piracy. We nd that the unknown artists prefer piracy more often than the famous artists, that the price charged by the for-prot platform does not necessarily decrease with piracy, and that piracy may damage the social welfare when the vertical differentiation is large enough.s
  11. By: Shaheen, Susan PhD; Cohen, Adam; Chan, Nelson; Bansal, Apaar
    Abstract: Shared mobility—the shared use of a vehicle, bicycle, or other mode—is an innovative transportation strategy that enables users to gain short-term access to transportation modes on an “as-needed” basis. It includes various forms of carsharing, bikesharing, scooter sharing, ridesharing (carpooling and vanpooling), transportation network companies (TNCs), and microtransit. Included in this ecosystem are smartphone “apps” that aggregate and optimize these mobility options, as well as “courier network services” that provide last mile package and food delivery. This chapter describes different models that have emerged in shared mobility and reviews research that has quantified the environmental, social, and transportation-related impacts of these services.
    Keywords: Engineering, shared mobility, innovative mobility, sharing economy, business models, sustainable transportation
    Date: 2020–01–01
  12. By: Sy Hoa Ho (Institute of Research and Development, Duy-Tan University); Jamel Saadaoui (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This empirical investigation aims at exploring the determinants of money demand in Vietnam by using both linear and nonlinear autoregressive distributed lags models over the period spanning from the third quarter of 2000 to the first quarter of 2018. Our findings can be summarized as follows: firstly, when the shock is symmetric (i.e. a permanent nominal appreciation of one percent), the money demand increases by 3.7 percent in the long term. Secondly, when the shock is asymmetric, for a permanent nominal appreciation of one percent, we observe an increase of 15.6 percent in the money demand. Whereas, for a permanent nominal depreciation of one percent, we observe a decrease of 7.4 percent in the money demand. These results are consistent with symmetry tests and lead us to think that asymmetries occur mainly in the short run and are transmitted to the long run.
    Keywords: Money Demand,Exchange Rate,ARDL models,NARDL models,Dollarization,E41,F31,F33,F41
    Date: 2019–12–19
  13. By: Elie Bouri (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon); Konstantinos Gkillas (Department of Business Administration, University of Patras – University Campus, Rio, P.O. Box 1391, 26500 Patras, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany)
    Abstract: We analyze the role of the US-China trade war in predicting, both in- and out-of-sample, daily realized volatility of Bitcoin returns. We study intraday data spanning from 1st July 2017 to 30th June 2019. We use the heterogeneous autoregressive realized volatility model (HAR-RV) as the benchmark model to capture stylized facts such as heterogeneity and long-memory. We then extend the HAR-RV model to include a metric of US-China trade tensions. This is our primary predictor of interest, and it is based on Google Trends. We also control for jumps, realized skewness, and realized kurtosis. For our empirical analysis, we use a machine-learning technique which is known as random forests. Our findings reveal that US-China trade uncertainty does improve forecast accuracy for various configurations of random forests and forecast horizons.
    Keywords: Bitcoin, Realized volatility, Trade war, Random forests
    JEL: G17 Q02 Q47
    Date: 2020–01
  14. By: Rösner, Anja; Haucap, Justus; Heimeshoff, Ulrich
    Abstract: We investigate the effect of an EU-wide consumer protection regulation on consumer trust as well as consumer behavior. The Unfair Commercial Practice Directive (UCPD) was implemented by EU member states between 2007 and 2010. We utilize data from the Special and Flash Eurobarometer for the years between 2006 and 2014 and experts' evaluation on consumer protection levels before the introduction of the regulation. This rich data set allows us to apply a difference-in-difference estimator with multiple time periods. We find a significant relationship between the introduction of the UCPD and consumer trust and cross-border purchases for countries with a low consumer protection level before the introduction of the UCPD. The relationship increases over time and stays then relatively constant.
    Keywords: Consumer Protection,UCPD,B2C,E-Commerce,Consumer Trust,Cross-border Purchase
    JEL: D18 K20 L50 L51
    Date: 2020
  15. By: Chuah,Lay Lian; Loayza,Norman V.; Schmillen,Achim Daniel
    Abstract: Will the revolution in digital and information technologies make us obsolete? Will jobs be lost and never replaced? Will wages drop to intolerable levels? History and economic theory and evidence suggest that in the long term, such fears are misplaced. However, in the short and medium term, dislocation can be severe for certain types of work, places, and populations. In the transition period, policies are needed to facilitate labor market flexibility and mobility, introduce and strengthen safety nets and social protection, and improve education and training.
    Keywords: Labor Markets,Rural Labor Markets,Armed Conflict,Food Security
    Date: 2018–08–01
  16. By: Krüger, Miriam; Kinne, Jan; Lenz, David; Resch, Bernd
    Abstract: In this paper, we introduce the concept of a Digital Layer to empirically investigate inter-firm relations at any geographical scale of analysis. The Digital Layer is created from large-scale, structured web scraping of firm websites, their textual content and the hyperlinks among them. Using text-based machine learning models, we show that this Digital Layer can be used to derive meaningful characteristics for the over seven million firm-to-firm relations, which we analyze in this case study of 500,000 firms based in Germany. Among others, we explore three dimensions of relational proximity: (1) Cognitive proximity is measured by the similarity between firms' website texts. (2) Organizational proximity is measured by classifying the nature of the firms' relationships (business vs. non-business) using a text-based machine learning classification model. (3) Geographical proximity is calculated using the exact geographic location of the firms. Finally, we use these variables to explore the differences between innovative and non-innovative firms with regard to their location and relations within the Digital Layer. The firm-level innovation indicators in this study come from traditional sources (survey and patent data) and from a novel deep learning-based approach that harnesses firm website texts. We find that, after controlling for a range of firm-level characteristics, innovative firms compared to non-innovative firms maintain more numerous relationships and that their partners are more innovative than partners of non-innovative firms. Innovative firms are located in dense areas and still maintain relationships that are geographically farther away. Their partners share a common knowledge base and their relationships are business-focused. We conclude that the Digital Layer is a suitable and highly cost-efficient method to conduct large-scale analyses of firm networks that are not constrained to specific sectors, regions, or a particular geographical level of analysis. As such, our approach complements other relational datasets like patents or survey data nicely.
    Keywords: Web Mining,Innovation,Proximity,Network,Natural Language Processing
    JEL: O30 R10 C80
    Date: 2020
  17. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); John Kwoka (Neal F. Finnegan Distinguished Professor of Economics, College of Social Sciences and Humanities, Northeastern University); Thomas Philippon (Max L. Heine Professor of Finance, NYU Stern School of Business, New York, New York 10012); Robert Seamans (Associate Professor of Management and Organizations, NYU Stern School of Business, New York, New York 10012); Hal Singer (Managing Director at Econ One, Adjunct Professor at Georgetown McDonough School of Business); Marshall Steinbaum (Assistant Professor, Economics Department, University of Utah); Lawrence J. White (Robert Kavesh Professor of Economics, NYU Stern School of Business, New York, New York 10012)
    Abstract: Following up on our initial comments at the Tunney Act proceeding of the proposed merger between Sprint and T-Mobile, we discuss DOJ’s criticisms of these comments, explaining why these criticisms are baseless. Moreover, using evidence from the NY v. Deutsche Telecom trial, we provide new arguments showing that the DOJ proposed remedy will fail to restore the ex ante competitive conditions in the affected antitrust product markets to the detriment of users of mobile phones in the United States.
    Keywords: Telecommunications; Merger; Tunney Act; Sprint; T-Mobile; Dish; DOJ
    JEL: L1 L4 L5 L9
    Date: 2020–01
  18. By: Jörg Claussen; Christian Peukert; Ananya Sen
    Abstract: We run a field experiment to quantify the economic returns to data and informational ex-ternalities associated with algorithmic recommendation relative to human curation in the context of online news. Our results show that personalized recommendation can outperform human curation in terms of user engagement, though this crucially depends on the amount of personal data. Limited individual data or breaking news leads the editor to outperform the algorithm. Additional data helps algorithmic performance but diminishing economic returns set in rapidly. Investigating informational externalities highlights that personalized recommendation reduces consumption diversity. Moreover, users associated with lower levels of digital literacy and more extreme political views engage more with algorithmic recommendations.
    Keywords: field experiment, economics of AI, returns to data, filter bubbles
    JEL: L82 L51 J24
    Date: 2019
  19. By: Abraham,Facundo; Schmukler,Sergio L.; Tessada,Jose
    Abstract: Investing through online automated platforms, known as robo-advisors, is increasingly popular. Robo-advisors expand access to wealth management services by making it easier and less costly to open investments accounts and receive financial advice, as well as plan and automate investment decisions. However, the rise of robo-advisors requires consumers to understand the limitations of these services and to get proper financial education. Policy makers need to grapple with the impact of robo-advisors on the overall financial system, as well as reassess their regulatory and supervisory practices.
    Keywords: Pensions&Retirement Systems,Educational Sciences,International Trade and Trade Rules,Educational Policy and Planning - Ministry of Education,Educational Institutions&Facilities,Educational Policy and Planning - Institutional Development,Educational Policy and Planning
    Date: 2019–02–26
  20. By: Massimo Motta; Martin Peitz
    Abstract: Big tech mergers are frequently occurring events. What are the competitive effects of these mergers? With the help of a simple model we identify the acquisition of potential competitors as a pressing issue for merger control in digital industries. We also sketch a few novel theories of harm of horizontal and conglomerate mergers that are potentially relevant in digital industries. Finally, we draw some policy recommendations on how to deal with mergers in such industries.
    Keywords: merger policy, digital markets, potential competition, conglomerate mergers
    JEL: L41 L13 K21
    Date: 2020–01

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