In a new paper published in the academic journal Business Economics, Yale economist Robert J. Shiller (and author of the book on Finance and the Good Society) develops further his argument that society needs financial innovation where investment is aligned with societal goals. In “Finance Contributing to the Good Society,” Shiller explains his new finance paradigm that embraces a wide spectrum of human goals (see also his presentation at the London School of Economics on the subject).
Traditional accounts of finance emphasize maximizing income. Shiller, by contrast, observes that individuals in fact pursue “a mixture of self-interest and public interest” goals. He seeks to redefine the concept of finance in order to account for this observed desire to maximize the public interest. Because “very few human goals can be attained by one human in isolation,” he claims that financial systems can be used to coordinate action and thus help individuals achieve their real goals.
According to Shiller:
“Financial innovation and advances in behavioral psychology together with information technology make it possible to work on diverse goals of a good society, such as reduction of crime, facilitating small investor participation in entrepreneurial enterprises, and mobilizing resources for enterprises whose success is not defined by conventional bottom lines.”
In the paper he provides three examples of creative finance innovations that seek such benevolent ends: 1) social impact bonds, 2) crowdfunding, and 3) the benefit corporation. Each model makes use of mathematical finance frameworks and modern behavioral economics to further public welfare. While it is too soon to say whether these innovations have been successful, each experiment “sets the stage for further, future, experiments” in pursuit of a diverse set of goals.