Social dimensions of finance

This issue of FTG Insights covers research on the broader social consequences of financial arrangements. “A Theory of Socially Responsible Investment” argues that environmentally-minded investors do the most good by funding green projects that aren’t profitable enough to appeal to traditional investors---as opposed to simply boycotting polluting-projects. “On the Magnification of Small Biases in Hiring” considers firms’ hiring of senior executives, and shows that even infinitesimally small biases in hiring committees in favor of some demographic group can lead to large advantages for that demographic group. “Worker Runs” develops insights from existing research on bank runs to understand a related phenomenon in which workers’ decisions to quit a firm are contagious; the article characterizes what types of firms are most exposed, and how they can structure employee compensation, including stock options, to mitigate the threat. “Intervention with Screening in Panic-Based Runs” considers the more traditional topic of the prevention of bank runs, and argues that governments could both reduce the cost of deposit insurance schemes, and reduce associated moral hazard, by shifting to opt-in schemes that are designed to be attractive specifically to depositors who are most likely to be pivotal in bank runs.