Date of Award

6-2012

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Tomas Dvorak

Language

English

Keywords

finance, social welfare, investments, economic theory, innovation

Abstract

Structured products are a rapidly growing type of financial engineering which allow firms to design solutions to meet the individual needs of investors. A structured product is a contract between a financial firm and its client. It involves packaging together traditional and exotic securities, commodities, and options generating a defined payout structure for the client. I ask whether these products enhance social welfare. I argue that, on balance, structured products increase social welfare. I find that while the products are complicated, they are not designed to hide risks nor are they likely to be a source of financial fragility. Rather, structured products mobilize savings, channel savings towards productive investments and distribute risk to those most willing and able to bear them.

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