RRF · Regulating Retail Finance

The proposed research falls into the fields of microeconomic theory and finance. The research team will develop novel modeling approaches that are suitable to study the scope and nature of (optimal) regulation in the retail financial industry, serving private households investment, savings and borrowing needs. Next to this, there is also the goal to use a rich set of locally available data that allows testing many of the developed hypotheses. The core part of the research draws on and contributes to modeling approaches in the following fields, in which the PI has also expertise and reputation: finance, information economics / agency theory and industrial organization. Combined with very recent own research, this will allow to build models that fit the characteristics that are pervasive to the retail financial industry: first, the often extremely limited knowledge and experience of households ( financial literacy ); second, the large extent to which households, therefore, rely on third-party advice; third, profound differences in existing regulatory approaches but also, in particular in Europe, in the industrial organization of these industries (e.g., in terms of vertical integration of distribution channels) and in market outcomes , as measured, for instance, by retail financial innovations, household participation, the size and composition of household debt or the nature of contracts (e.g., fixed vs. variable interest rates). The funded research together with complementary parts that are already in place will allow to generate a critical mass of research at the highest level and with high visibility, given that the area is heavily underresearched but of high policy relevance. The overarching long-term objective is to create a centre for the microeconomic study of retail finance: A place of continuing attraction for top researchers in economics and finance.