Conflicts of interest may bias research in finance and economics

Economists have explicitly recognised the possibility that regulatory agencies may be captured by those whom they are supposed to regulate. However, the economics profession has been much more hesitant about recognising similar conflicts of interests that may exist in economics and finance research (i.e., academic capture). Thorsten Beck and Orkun Saka report on the related discussions and research recently presented at the second London Political Finance (POLFIN) workshop.

 
Since Stigler’s (1971) seminal work, economists have explicitly recognised the possibility that regulatory agencies may be captured by those whom they are supposed to regulate. That is, those public sector employees who are ideally expected to do gatekeeping against the private companies in order to uphold the public interest may have legitimate economic incentives to act against such expectations, leading to pervasive conflicts of interest in regulation. Despite the now widely-held consensus view among economists that public gatekeeping activity may end up serving private interests, our profession has been much more hesitant about recognising similar conflicts of interests that may exist in economics research and bias the scientific process towards powerful institutions with monopolistic access to confidential datasets and high-end job market prospects (Zingales, 2013; Fabo, Jančoková, Kempf and Pástor, 2021).

Building on these issues during the 2nd London Political Finance (POLFIN) Workshop, Renee Adams (2021) delivered an insightful keynote speech based on her past experiences as a young economist at the Federal Reserve Bank of New York. Through an auto-ethnographical lens, she reflected on her correspondence with one of the top journals in finance while she was trying to publish a paper on the potential governance failures in the way that Fed regulated its member banks. Despite her serious attempts to target the concerns of the referees, it seemed that the gatekeepers—some of whom were seemingly well-connected to the Fed—were less than willing to accept the implications that her research could have had on the bank and its top management. Disheartened by the potential conflicts of interest on the part of the “gatekeepers”, she left the project behind as a working paper. Unfortunately, this early experience went a long way to answer the question she posed in the beginning of her speech: “why haven’t I written more papers about political finance?”.

Apart from its memorable keynote speech and the following fruitful discussion (which you can see in the video below), this year’s POLFIN workshop brought together a set of high-quality research projects on this rather niche theme. Below we present a short summary for a few of these papers and comment on the avenues that would benefit most from further research in the future.

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Πηγή: blogs.lse.ac.uk