Tuesday, February 7th, 2017 1:37 pm

City of London

Question A: All else equal, there are substantial advantages to having much of Europe’s human capital and infrastructure for international financial activity clustered in a single city, as they are at present in London.

Responses
 

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel

Responses weighted by each expert's confidence

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel

Question B: All else equal, Britain’s rules on hiring, firing and working hours are significantly more conducive to financial activity than those in other large European countries.

Responses
 

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel

Responses weighted by each expert's confidence

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Aghion Philippe Aghion Harvard Did Not Answer
Bio/Vote History
         
Allen Franklin Allen Imperial College London Strongly Agree 8
There are huge agglomeration effects from having clusters of expertise.
Bio/Vote History
         
Antras Pol Antras Harvard Agree 7
Agglomeration economies in this industry appear to be pervasive (New York City, Singapore, Hong Kong, etc.)
Bio/Vote History
         
Baldwin Richard Baldwin The Graduate Institute Geneva Did Not Answer
Bio/Vote History
         
Besley Timothy J. Besley LSE Agree 7
Bio/Vote History
         
Blanchard Olivier Blanchard Peterson Institute Agree 7
Bio/Vote History
         
Bloom Nicholas Bloom Stanford Strongly Agree 9
There are large spillovers in finance - I worked in McKinsey in London and saw this first hand. Europe needs to compete with the US & Asia.
Bio/Vote History
         
Blundell Richard William Blundell University College London Agree 7
Strong international nature of the city, the institutional structure and the levels of expertise work well together. Let's hope that remains
Bio/Vote History
         
Bénassy-Quéré Agnès Bénassy-Quéré Paris School of Economics Agree 7
There are economies of scale, but concentration also increases the risks related to size and possible collusion.
Bio/Vote History
         
Carletti Elena Carletti Bocconi Uncertain 8
Bio/Vote History
         
Danthine Jean-Pierre Danthine Paris School of Economics Uncertain 5
Bio/Vote History
         
De Grauwe Paul De Grauwe LSE Did Not Answer
Bio/Vote History
         
Eeckhout Jan Eeckhout University College London Agree 7
Bio/Vote History
         
Fehr Ernst Fehr Universität Zurich Did Not Answer
Bio/Vote History
         
Freixas Xavier Freixas Universitat Pompeu Fabra Agree 6
Competition from virtual trading platforms limits the monopolistic effect while centralization increases liquidity
Bio/Vote History
         
Fuchs-Schündeln Nicola Fuchs-Schündeln Goethe-Universität Frankfurt No Opinion
Bio/Vote History
         
Galí Jordi Galí Universitat Pompeu Fabra Disagree 6
There may be a tradeoff involving competition, economies of scale and regulatory/political risk. Two or three financial centers may be best.
Bio/Vote History
         
Garicano Luis Garicano LSE Uncertain 5
There exist some agglomeration economies. It is unclear however how substantial they are, with ICT playing a growing role in Finance
Bio/Vote History
         
Giavazzi Francesco Giavazzi Bocconi Agree 5
Enrico Morretti's work on cities (The New Geography of Jobs) is a good starting point
Bio/Vote History
         
Griffith Rachel Griffith University of Manchester Agree 6
Bio/Vote History
         
Guerrieri Veronica Guerrieri Chicago Booth Agree 6
Bio/Vote History
         
Guiso Luigi Guiso Einaudi Institute for Economics and Finance Agree 8
Bio/Vote History
         
Hellwig Martin Hellwig Max Planck Institute for Research on Collective Goods Uncertain 10
Advantages from economies of scale and scope may well be matched by disadvantages from herding and systemic risk.
Bio/Vote History
         
Honohan Patrick Honohan Trinity College Dublin Disagree 5
Some economies of agglomeration are evident - but seem to be eubsector-specific.
Bio/Vote History
         
Kleven Henrik Kleven Princeton Did Not Answer
Bio/Vote History
         
Krahnen Jan Pieter Krahnen Goethe University Frankfurt Disagree 8
For hub-and-spoke structure, we need to balance agglomeration synergy against systemic risk externality (created at hub, borne by spokes).
-see background information here
Bio/Vote History
         
Krusell Per Krusell Stockholm University Disagree 2
It's not clear to me what the positive agglomeration activities are. Agglomeration can be bad too. But I'm far from an expert on this!
Bio/Vote History
         
Kőszegi Botond Kőszegi Central European University No Opinion
Bio/Vote History
         
La Ferrara Eliana La Ferrara Bocconi Uncertain 3
Bio/Vote History
         
Leuz Christian Leuz Chicago Booth Agree 6
Substantial agglomeration benefits in cities (Krugman, 1991); applies esp. to financial services and skilled labor
Bio/Vote History
         
Meghir Costas Meghir Yale Strongly Agree 8
Bio/Vote History
         
Neary Peter Neary Oxford Agree 8
Local costs (high house prices, inequality) but clear EU-wide gains to agglomeration. Unsustainable outside the Single Market however.
Bio/Vote History
         
O'Rourke Kevin O'Rourke Oxford Disagree 6
Bio/Vote History
         
Pagano Marco Pagano Università di Napoli Federico II Agree 8
There are efficiency advantages, due to the externalities and fixed costs in finance. But there can be distributional disadvantages.
Bio/Vote History
         
Pastor Lubos Pastor Chicago Booth Agree 5
A single city offers economies of scale, deep pool of talent, strong external services. But 2-3 cities could also work.
Bio/Vote History
         
Persson Torsten Persson Stockholm University Did Not Answer
Bio/Vote History
         
Pissarides Christopher Pissarides LSE Disagree 5
the vast majority of transactions nowadays are done electronically and I don't see big advantages to having them done from a single centre.
Bio/Vote History
         
Portes Richard Portes London Business School Strongly Agree 10
Agglomeration benefits and externalities are why London is currently top of global financial centers. Brexit is a serious threat to this.
Bio/Vote History
         
Prendergast Canice Prendergast Chicago Booth Agree 7
Bio/Vote History
         
Reichlin Lucrezia Reichlin London Business School Agree 9
Bio/Vote History
         
Repullo Rafael Repullo CEMFI Agree 7
Bio/Vote History
         
Rey Hélène Rey London Business School Uncertain 4
There are probably synergies between financial activities but no evidence that they should ALL be clustered together for efficiency,
Bio/Vote History
         
Schoar Antoinette Schoar MIT Agree 7
Krugman (1991) suggests agglomeration in financial services is stronger than other industry due to knowledge spill overs, talent acquisition
-see background information here
-see background information here
Bio/Vote History
         
Van Reenen John Van Reenen MIT Agree 4
Bio/Vote History
         
Vickers John Vickers Oxford Agree 8
Large economies of agglomeration. But caveat that the hub is sensibly regulated and not prone to collusion.
Bio/Vote History
         
Voth Hans-Joachim Voth University of Zurich Strongly Agree 8
Wholesale financial services naturally congregate in a handful of locations....that's why there are financial centers in the first place.
Bio/Vote History
         
Weder di Mauro Beatrice Weder di Mauro Gutenberg University Mainz and INSEAD Strongly Disagree 9
Bio/Vote History
         
Whelan Karl Whelan University College Dublin Disagree 5
There may be some wider advantages for Europe due to the clustering of financial service activity in London but it is likely to be small.
Bio/Vote History
         
Wyplosz Charles Wyplosz The Graduate Institute Geneva Agree 5
We need to balance the benefits from local networks with the consequences of Brexit.
Bio/Vote History
         
Zilibotti Fabrizio Zilibotti Universität Zurich Agree 8
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Aghion Philippe Aghion Harvard Did Not Answer
Bio/Vote History
         
Allen Franklin Allen Imperial College London Strongly Agree 8
Most other large European countries have higher social payments, taxes and more secure employment. Providing incentives is more difficult.
Bio/Vote History
         
Antras Pol Antras Harvard Uncertain 4
I'm no expert on labor market regulations. But I'd imagine that other factors were more important in making London Europe's financial center
Bio/Vote History
         
Baldwin Richard Baldwin The Graduate Institute Geneva Did Not Answer
Bio/Vote History
         
Besley Timothy J. Besley LSE Agree 8
Bio/Vote History
         
Blanchard Olivier Blanchard Peterson Institute Agree 8
Bio/Vote History
         
Bloom Nicholas Bloom Stanford Agree 8
They are right now, but nobody knows what will happen post Brexit. We have been surveying firms and they know as little as the government.
Bio/Vote History
         
Blundell Richard William Blundell University College London Agree 7
London currently provides a good international environment for the kind of mobility essential for a flourishing financial industry.
Bio/Vote History
         
Bénassy-Quéré Agnès Bénassy-Quéré Paris School of Economics Agree 4
Differences in labour flexibility are less marked for executives. Other factors are also important for the location of financial activity.
Bio/Vote History
         
Carletti Elena Carletti Bocconi Uncertain 5
Bio/Vote History
         
Danthine Jean-Pierre Danthine Paris School of Economics Agree 7
Bio/Vote History
         
De Grauwe Paul De Grauwe LSE Did Not Answer
Bio/Vote History
         
Eeckhout Jan Eeckhout University College London Agree 7
Bio/Vote History
         
Fehr Ernst Fehr Universität Zurich Did Not Answer
Bio/Vote History
         
Freixas Xavier Freixas Universitat Pompeu Fabra No Opinion
Bio/Vote History
         
Fuchs-Schündeln Nicola Fuchs-Schündeln Goethe-Universität Frankfurt No Opinion
Bio/Vote History
         
Galí Jordi Galí Universitat Pompeu Fabra Agree 8
Bio/Vote History
         
Garicano Luis Garicano LSE Strongly Agree 8
The legal environment, safe, fast and low cost in the UK, is key. This goes beyond labor costs into Secutities and IPO cost etc.
Bio/Vote History
         
Giavazzi Francesco Giavazzi Bocconi Strongly Agree 1
no brainer
Bio/Vote History
         
Griffith Rachel Griffith University of Manchester Agree 8
Bio/Vote History
         
Guerrieri Veronica Guerrieri Chicago Booth Uncertain 6
Bio/Vote History
         
Guiso Luigi Guiso Einaudi Institute for Economics and Finance Disagree 7
Rules in some other European countries - e.g. Ireland - are not worse
Bio/Vote History
         
Hellwig Martin Hellwig Max Planck Institute for Research on Collective Goods Agree 4
If "financial activity" refers to trading, the statement is probably true, if to funding of the real economy, the matter is not so clear.
Bio/Vote History
         
Honohan Patrick Honohan Trinity College Dublin Agree 5
...But from social welfare perspective, macho investment bank culture (facilitated by such labour market practices) can be questioned
Bio/Vote History
         
Kleven Henrik Kleven Princeton Did Not Answer
Bio/Vote History
         
Krahnen Jan Pieter Krahnen Goethe University Frankfurt Uncertain 7
For non-tariff employees, income tax law and conducive (friendly) regulatory policies are way more important than hiring and firing rules.
Bio/Vote History
         
Krusell Per Krusell Stockholm University Disagree 2
Not obvious that labor regulation is that relevant in this particular sector. It is in others but finance is full of other incentives.
Bio/Vote History
         
Kőszegi Botond Kőszegi Central European University No Opinion
Bio/Vote History
         
La Ferrara Eliana La Ferrara Bocconi Agree 3
Bio/Vote History
         
Leuz Christian Leuz Chicago Booth Uncertain 6
Not clear that significantly so; depending on dimension of labor law, NL, IE, DE, CH can be close. And, less flex can be good for innovation
-see background information here
Bio/Vote History
         
Meghir Costas Meghir Yale Strongly Agree 8
Bio/Vote History
         
Neary Peter Neary Oxford Agree 6
Balance in UK labour markets is more tilted towards employers: ironically this also makes incumbent firms less likely to stay post-Brexit
Bio/Vote History
         
O'Rourke Kevin O'Rourke Oxford Disagree 6
Bio/Vote History
         
Pagano Marco Pagano Università di Napoli Federico II Agree 7
Labor contract flexibility is very important in finance, both for incentive reasons and to reallocate labor swiftly as opportunities change.
Bio/Vote History
         
Pastor Lubos Pastor Chicago Booth Agree 8
Flexible labor markets are particularly valuable to cyclical industries such as finance.
Bio/Vote History
         
Persson Torsten Persson Stockholm University Did Not Answer
Bio/Vote History
         
Pissarides Christopher Pissarides LSE Agree 10
Financial institutions need flexibility above all and Britian offers it. But so does, e.g., Ireland.
Bio/Vote History
         
Portes Richard Portes London Business School Uncertain 10
Overall, I doubt labour market regulation makes much difference in financial sector. No evidence. English language and time zone important.
Bio/Vote History
         
Prendergast Canice Prendergast Chicago Booth Agree 7
Bio/Vote History
         
Reichlin Lucrezia Reichlin London Business School Disagree 9
Bio/Vote History
         
Repullo Rafael Repullo CEMFI Agree 7
Bio/Vote History
         
Rey Hélène Rey London Business School Uncertain 8
Labour laws are being changed in a number of countries so it is hard to know.
Bio/Vote History
         
Schoar Antoinette Schoar MIT Agree 8
Bio/Vote History
         
Van Reenen John Van Reenen MIT Agree 3
Bio/Vote History
         
Vickers John Vickers Oxford Agree 7
Ratio of value of flexibility to that of working terms regulation is relatively high in finance. UK is somewhat freer than most of EU.
Bio/Vote History
         
Voth Hans-Joachim Voth University of Zurich Disagree 7
I think this is really secondary; "light touch" regulation and the lock-in from pre-existing activity are much more important.
Bio/Vote History
         
Weder di Mauro Beatrice Weder di Mauro Gutenberg University Mainz and INSEAD Disagree 6
Bio/Vote History
         
Whelan Karl Whelan University College Dublin Strongly Disagree 8
I don't believe labour laws in France, Germany or Ireland, for example, will be a deterring factor for financial service firms.
Bio/Vote History
         
Wyplosz Charles Wyplosz The Graduate Institute Geneva Strongly Agree 9
One should add the prejudices against finance and wealth that permeate the continent.
Bio/Vote History
         
Zilibotti Fabrizio Zilibotti Universität Zurich Agree 9
Bio/Vote History
         

About the European IGM Economic Experts Panel

This panel explores the views of European economists on vital public policy issues. It does this by polling them on important policy questions, by including a way for them to explain their answers briefly if they wish, and by disseminating these responses directly to the public in a simple format.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the main areas of economics, to be geographically diverse, and to include older and younger scholars. As with the IGM’s US panel, the experts are all outstanding researchers in their fields. The panel includes recipients of top national and international prizes in economics, fellows of the Econometric society and the European Economic Association, members of distinguished national and international policymaking bodies in Europe, recipients of significant grants for economic research, highly accomplished affiliates and program directors of the Centre for Economic Policy Research and the National Bureau of Economic Research, and past and current editors of leading academic journals in the profession. This approach not only provides a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters in Europe and beyond.

Questions for the European IGM Economic Experts Panel are emailed individually to all members of the panel. They are phrased as statements with which one can agree or disagree. The experts are also asked how confident they are in their knowledge of the issue associated with the question (10 being highest). Each panelist responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering. They may also include brief comments with their responses, or provide links to relevant sources.

It is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist knows a lot about a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's knowledge that he or she does not feel well placed to judge. In this case, our panelists vote "no opinion".

Panelists suggest many of the questions themselves. Members of the public are also welcome to suggest questions (see link below). Although IGM faculty members are responsible for deciding the final version of each question, we send a draft of the question to the panel in advance and invite them to point out problems with the wording if they see any. This process helps us to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and will be analyzed for an article to appear in a peer-reviewed journal.

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