Sumit Agarwal and Jian Zhang. 2020. “Fintech Lending and Payment Innovation: A Review.” Asia Pacific J. Fin Studies. Available here.Abstract
The global landscape has seen the advent of new technology in offering innovative financial services and products and reshaping the financial sector, namely FinTech. In this review, we discuss the literature on recent FinTech development and its interaction with both banks and consumers. We synthesize the insights it provides into two domains: credit supply and payment and clearing services. The rise of FinTech has introduced digital transformation of the “bricks‐and‐mortar” banking model and dramatically changed the way financial services are delivered. We also present several future questions and directions that are worthy of investigation for researchers and policy‐makers.
Douglas W. Arner, Jànos N. Barberis, and Ross P. Buckley. 2016. “The Evolution of Fintech: A New Post-Crisis Paradigm?” Geo. J. Int’l. L., 47, Pp. 1271.Abstract
"FinTech," a contraction of 'financial technology," refers to technology enabled financial solutions. It is often seen today as the new marriage of financial services and information technology. However, the interlinkage of finance and technology has a long history and has evolved over three distinct eras, during which finance and technology have evolved together: first in the analogue context; then with a process of digitalization of finance from the late twentieth century onwards; and since 2008, a new era of FinTech emerging in both the developed and developing world. This new era is defined not by the financial products or services delivered, but by who delivers them and the application of rapidly developing technology at the retail and wholesale levels. This latest evolution of Fin Tech, led by start-ups, poses challenges for regulators and market participants alike, particularly in balancing the potential benefits of innovation with the possible risks of new approaches. We analyze the evolution of Fin Tech over the past 150 years, and on the basis of this analysis, argue against its too-early or rigid regulation at this juncture.
Douglas W. Arner, Jànos N. Barberis, and Ross P. Buckley. 2016. “The Emergence of Regtech 2.0: From Know Your Customer to Know Your Data.” J. Fin. Transformation, 44, Pp. 79.Abstract

The regulatory changes and technological developments following the 2008 Global Financial Crisis are fundamentally changing the nature of financial markets, services and institutions. At the juncture of these two phenomena lies regulatory technology or ‘RegTech’ – the use of technology, particularly information technology, in the context of regulatory monitoring, reporting and compliance.

RegTech to date has focused on the digitization of manual reporting and compliance processes, for example in the context of know-your-customer requirements. This offers tremendous cost savings to the financial services industry and regulators. However, the potential of RegTech is far greater – it could enable a close to real-time and proportionate regulatory regime that identifies and addresses risk while also facilitating more efficient regulatory compliance.

We argue that the transformative nature of technology will only be captured by a new approach that sits at the nexus between data, digital identity and regulation. The development of financial technology (‘FinTech’), rapid developments in emerging markets, and recent pro-active stance of regulators in developing regulatory sandboxes, represent a unique combination of events, which could facilitate the transition from one regulatory model to another.

Douglas W. Arner, Dirk A. Zetzsche, Ross P. Buckley, and Jànos N. Barberis. 2017. “ FinTech and RegTech: Enabling Innovation while Preserving Financial Stability.” Geo. J. Int'l. Aff., 18, Pp. 47.Abstract
The exponential growth of FinTech is forcing financial regulators around the world to reconsider how best to balance the key regulatory objectives of innovation and financial stability. This paper considers the potential role of RegTech and smart regulation in facilitating this balancing act. Financial regulators have begun to use regulatory sandboxes in many parts of the world to achieve this end, however there is a clear opportunity for a further shift towards datafied and digitized regulation.
Douglas W. Arner, Ross P. Buckley, and Dirk A. Zetzsche. 2019. “Fintech, Regtech and Systemic Risk: The Rise of Global Technology Risk.” In Systemic Risk in the Financial Sector: Ten Years after the Great Crash, Pp. 69.Abstract
This chapter analyzes the impact of financial and regulatory technologies on systemic risk. Over the past decade a long-term process of digitization of finance has increasingly combined with datafication and new technologies including cloud computing, blockchain, big data and artificial intelligence in a new era of FinTech (“financial technology”). This process of digitization and datafication combined with new technologies can be seen across developed global markets and also in emerging and developing markets, where the process of digital financial transformation if anything is taking place even faster than in developed markets. The result: new forms of systemic risk, with cybersecurity and technological risks now major financial stability and national security threats. In addition, the entry of major technology firms into finance – TechFins – brings two new issues. The first arises in the context of new forms of potentially systemic infrastructure (such as data and cloud services providers). The second arises because data – like finance – benefits from economies of scope and scale and from network effects and – even more than finance – tends towards monopolistic or oligopolistic outcomes, resulting in the potential for systemic risk from new forms of “Too Big to Fail” and “Too Connected to Fail” phenomena. To conclude, we suggest some basic principles about how such risks can be monitored and addressed, focusing in particular on the role of regulatory technology (“RegTech”).
Dan Awrey. Forthcoming. “Bad Money.” Cornell L. Rev., 106. Available here.Abstract
Money is, always and everywhere, a legal phenomenon. In the United States, the vast majority of the money supply consists of monetary liabilities — contractually enforceable promises — issued by commercial banks and money market funds. These private financial institutions are subject to highly sophisticated public regulatory frameworks designed, in part, to enhance the credibility of these promises. These regulatory frameworks thus give banks and money market funds an enormous comparative advantage in the issuance of monetary liabilities, transforming otherwise risky legal claims into so-called “safe assets” — good money. Despite this advantage, recent years have witnessed an explosion in the number and variety of financial institutions seeking to issue monetary liabilities. This new breed of monetary institutions includes peer-to-peer payment platforms such as PayPal and aspiring stablecoin issuers such as Facebook’s Libra Association. The defining feature of these new monetary institutions is that they seek to issue money outside the perimeter of conventional bank and money market fund regulation. This paper represents the first comprehensive examination of the antiquated patchwork of state regulatory frameworks that currently, or might soon, govern these new institutions. It finds that these frameworks are characterized by significant heterogeneity and often fail to meaningfully enhance the credibility of the promises that these institutions make to the holders of their monetary liabilities. Put bluntly: these institutions are issuing bad money. This paper therefore proposes a National Money Act designed to strengthen and harmonize the regulatory frameworks governing these new institutions and promote a more level competitive playing field.
Dan Awrey and Kristin van Zwieten. 2018. “The Shadow Payment System.” J. Corp. L., 43, Pp. 102.Abstract

Banking, derivatives, and structured finance may attract the lion’s share of accolades and approbation in global finance—but payment systems are where the money is. Historically, payment systems in most jurisdictions have been legally and operationally intertwined with the conventional banking system. The stability of these systems has thus benefited from the unique prudential regulatory regimes imposed on deposit-taking banks. These regimes include deposit guarantee schemes, emergence liquidity assistance or ‘lender of last resort’ facilities, and special bankruptcy or ‘resolution’ processes for failing banks. These regimes have the practical effect of relaxing the strict application of corporate bankruptcy law, thereby enabling banks—and the payment systems embedded within them—to continue to perform their core payment and other functions under conditions of severe institutional stress.

Recent years have witnessed the emergence of a vibrant, diverse, and rapidly growing shadow payment system. This system includes peer-to-peer payment systems such as PayPal, mobile money platforms such as M-Pesa, and crypto-currency exchanges such as Mt. Gox. The defining feature of this shadow payment system is that the financial institutions that populate it perform the same core payment functions as banks, but without benefiting from the prudential regulatory regimes that ensure bank-based payment systems can continue to function during periods of institutional stress free from the substantive and procedural constraints imposed by general corporate bankruptcy law. This paper examines the risks that the legal treatment of the shadow payment system poses to both customers and broader financial and economic stability, along with the likely effectiveness of various strategies that might be employed to address these risks.

John W. Bagby and David Reitter. 2019. “Anticipatory FinTech Regulation: On Deploying Big Data Analytics to Predict the Direction, Impact and Control of Financial Technology ”. Available here.Abstract
Financial Technologies (FinTech) lie at the heart of disruptive innovation comprising critical infrastructure for much of modern business practice and national security. Modern FinTech sectors are data driven – startup finance, commodities and investment instrumentation, payment systems, trading platforms, exchange markets, market failure regulation, underwriting and syndication, risk assessment and management, advisory services, commercial banking, transaction settlement through financial intermediaries, corporate disclosure and governance, and currencies. This paper demonstrates that most FinTech innovations, scholarship and public policy development are significantly informed by big data analysis balancing: (1) FinTech innovation incentives, (2) market failure forensics, and (3) public policy development. FinTech almost always deserves a wary eye – experience reveals that many FinTech mechanisms externalize social costs of their design flaws, opacity/obscurity and malfunctioning. Some FinTechs appear intended to skirt regulation suffering regulatory lag, the delay following the first appearance of novel FinTechs and the later development, assessment, and deployment of reliable regulatory mechanisms. FinTech policy issues span from the traditional regulation of financial markets, through systemic costs of FinTech intellectual property (IP) concerns and ultimately to national security risks imposed by the financial system’s centrality among critical infrastructures.
Tom Baker and Benedict G. C. Dellaert. 2018. “Regulating Robo Advice Across the Financial Services Industry.” Iowa L. Rev., 103, Pp. 713.Abstract
Automated financial product advisors – “robo advisors” – are emerging across the financial services industry, helping consumers choose investments, banking products, and insurance policies. Robo advisors have the potential to lower the cost and increase the quality and transparency of financial advice for consumers. But they also pose significant new challenges for regulators who are accustomed to assessing human intermediaries. A well-designed robo advisor will be honest and competent, and it will recommend only suitable products. Because humans design and implement robo advisors, however, honesty, competence, and suitability cannot simply be assumed. Moreover, robo advisors pose new scale risks that are different in kind from that involved in assessing the conduct of thousands of individual actors. This essay identifies the core components of robo advisors, key questions that regulators need to be able to answer about them, and the capacities that regulators need to develop in order to answer those questions. The benefits to developing these capacities almost certainly exceed the costs, because the same returns to scale that make an automated advisor so cost-effective lead to similar returns to scale in assessing the quality of automated advisors.
Megan M. La Belle and Heidi Mandanis Schooner. Forthcoming. “Fintech: New Battle Lines in the Patent Wars?” Cardozo L. Rev.Abstract
Historically, financial institutions have relied on trade secrets and first-mover advantages, rather than patents, to protect their inventions. For the few financial patents that were issued, conventional wisdom was that they weren’t terribly interesting or important. In our 2014 study on financial patents, we showed that banks were breaking from past patterns and increasingly seeking patent protection. We explained that financial institutions were primarily building their patent portfolios as a defensive measure — i.e., to protect themselves from infringement suits. Indeed, the finance industry successfully lobbied Congress to include provisions in the America Invents Act of 2011 that made it easier to invalidate financial patents through administrative review. Yet, two significant developments call for a revisit of our 2014 study: first, the rise of fintech and, second, the recent $300 million verdict in the first bank-on-bank patent infringement suit — USAA v. Wells Fargo. This paper explores how the rise of fintech has changed the purpose of patenting among banks, and what a possible fintech patent war would mean for the future of both the financial and patent systems in this country.
Yochai Benkler. 2002. “Coase’s Penguin, or, Linux and “The Nature of the Firm”.” Yale L. J., 112, Pp. 369.Abstract
For decades our common understanding of the organization of economic production has been that individuals order their productive activities in one of two ways: either as employees in firms, following the directions of managers, or as individuals in markets, following price signals. This dichotomy was first identified in the early work of Ronald Coase and was developed most explicitly in the work of institutional economist Oliver Williamson. Recently, public attention has focused on a fifteen-year-old phenomenon called free software or open source software. This phenomenon involves thousands, or even tens of thousands, of computer programmers who collaborate on large- and small-scale projects without traditional firm-based or market-based ownership of the resulting product. This Article explains why free software is only one example of a much broader social-economic phenomenon emerging in the digitally networked environment, a third mode of production that the author calls "commons-based peer production." The Article begins by demonstrating the widespread use of commons-based peer production on the Internet through a number of detailed examples, such as Wikipedia, Slashdot, the Open Directory Project, and Google. The Article uses these examples to reveal fundamental characteristics of commons-based peer production that distinguish it from the property- and contract-based modes of firms and markets. The central distinguishing characteristic is that groups of individuals successfully collaborate on large-scale projects following a diverse cluster of motivational drives and social signals rather than market prices or managerial commands. The Article then explains why this mode has systematic advantages over markets and managerial hierarchies in the digitally networked environment when the object of production is information or culture. First, peer production has an advantage in what the author calls "information opportunity cost," because it loses less information about who might be the best person for a given job. Second, there are substantial increasing allocation gains to be captured from allowing large clusters of potential contributors to interact with large clusters of information resources in search of new projects and opportunities for collaboration. The Article concludes with an overview of how these models use a variety of technological, social, and formal strategies to overcome the collective action problems usually solved in managerial and market-based systems by property, contract, and managerial commands. This Article contends that the common understanding of Miranda as a direct restraint on custodial interrogation by police is mistaken. Instead, Miranda, like the privilege against compulsory self-incrimination that serves as its constitutional foundation, is a rule of admissibility. As the text of the privilege, the Supreme Court's Fifth Amendment jurisprudence, and the Miranda majority's reasoning all demonstrate, neither the privilege nor Miranda can be violated without use of a compelled statement in a criminal case. Miranda controls police conduct only indirectly, by requiring suppression of statements taken in violation of the Miranda rules. At least two significant consequences flow from this understanding. First, police violations of the Miranda rules alone cannot support civil lawsuits under 42 U.S.C. § 1983. Second, and more importantly, police have no constitutional obligation to comply with the Miranda warnings and waiver regime. Rather, police are free to disregard Miranda if they deem it advantageous. If the Supreme Court had fashioned a stringent Miranda exclusionary doctrine-one similar to that which applies when prosecutors compel testimony by use of immunity grants-police would have good reason to comply with the Miranda rules even absent a constitutional duty. But, the Court has done the opposite, creating a host of evidentiary incentives for police to violate those rules. Thus, it is not surprising that some police officers and departments deliberately disregard Miranda in order to benefit from those incentives. Because many federal appellate courts already have interpreted Miranda as a rule that governs only admissibility, and there is a good chance that the Supreme Court will construe the privilege accordingly when it decides Chavez v. Martinez this Term, Miranda's future appears bleak. It is likely that the Court will signal to police that they have no constitutional duty to follow Miranda rules and, at the same time, will leave intact its decisions tempting police to violate those rules. This Article offers an alternative approach, one by which the Court squares its Miranda doctrine with its treatment of the privilege in other contexts. This proposed approach would mandate that the Court treat Miranda as a rule of admissibility but also would require that it rethink many of the decisions that entice police to violate the Miranda rules.
Chris Brummer. 2015. “Disruptive Technology and Securities Regulation.” Fordham L. Rev., 84, Pp. 977.Abstract
Nowhere has disruptive technology had a more profound impact than in financial services — and yet nowhere more do academics and policymakers lack a coherent theory of the phenomenon, much less a coherent set of regulatory prescriptions. Part of the challenge lies in the varied channels through which innovation upends market practices. Problems also lurk in the popular assumption that securities regulation operates against the backdrop of stable market gatekeepers like exchanges, broker-dealers and clearing systems — a fact scenario increasingly out of sync in 21st century capital markets. This Article explains how technological innovation not only “disrupts” capital markets — but also the exercise of regulatory supervision and oversight. It provides the first theoretical account tracking the migration of technology across multiple domains of today’s securities infrastructure and argues that an array of technological innovations are facilitating what can be understood as the disintermediation of the traditional gatekeepers that regulatory authorities have relied on (and regulated) since the 1930s for investor protection and market integrity. Effective securities regulation will thus have to be upgraded to account for a computerized (and often virtual) market microstructure that is subject to accelerating change. To provide context, the paper examines two key sources of disruptive innovation: 1) the automated financial services that are transforming the meaning and operation of market liquidity and 2) the private markets — specifically, the dark pools, ECNs, 144A trading platforms, and crowdfunding websites — that are creating an ever-expanding array of alternatives for both securities issuances and trading.
Chris Brummer and Yesha Yadav. 2019. “Fintech and the Innovation Trilemma.” Geo. L. Rev., 107, Pp. 235.Abstract

Whether in response to robo advising, artificial intelligence, or crypto-currencies such as Bitcoin, regulators around the world have made it a top policy priority to supervise the exponential growth of financial technology (or “fintech”) in the post-crisis era. However, applying traditional regulatory strategies to new technological ecosystems has proved conceptually difficult. Part of the challenge lies in managing the trade-offs that accompany the regulation of innovations that could, conceivably, both help and hurt consumers as well as market participants. Problems also arise from the common assumption that today’s fintech is a mere continuation of the story of innovation that has shaped finance for centuries.

This Article offers a new theoretical framework for understanding and regulating fintech by showing how the supervision of financial innovation is invariably bound by what can be described as a policy trilemma. Specifically, we argue that when seeking to provide clear rules, maintain market integrity, and encourage financial innovation, regulators have long been able to achieve, at best, only two out of these three goals. Moreover, today’s innovations exacerbate the trade-offs historically embodied in the trilemma by breaking down financial services supply chains into discrete parts and disintermediating traditional functions using cutting edge, but untested, technologies, thereby introducing unprecedented uncertainty as to their risks and benefits. This Article seeks to catalogue the strategies taken by regulatory authorities to navigate the trilemma and posits them as operating across a spectrum of interrelated responses. The Article then proposes supplemental administrative tools to support not only market, but also regulatory experimentation and innovation.

Ross P. Buckley, Douglas W. Arner, Dirk A. Zetzsche, and Rolf H. Weber. 2019. “The Road to RegTech, the (Astonishing) Example of the European Union.” J. Banking Reg.Abstract
Europe’s road to RegTech has rested upon four apparently unrelated pillars: (1) extensive reporting requirements imposed after the Global Financial Crisis to control systemic risk and change in financial sector behaviour; (2) strict data protection rules reflecting European cultural concerns about data privacy and protection; (3) the facilitation of open banking to enhance competition in banking and particularly payments; and (4) a legislative framework for digital identification to further the European Single Market. The paper analyses these four pillars and suggests that together they are underpinning the development of a RegTech ecosystem in Europe and will continue to do so. We argue that the European Union’s financial services and data protection regulatory reforms have unintentionally driven the use of regulatory technologies (RegTech) by intermediaries, supervisors and regulators, and provided an environment within which RegTech can flourish. The experiences of Europe in this process will provide insights for other societies in developing their own RegTech ecosystems in order to support more efficient, stable, inclusive financial systems.
Ross P. Buckley, Douglas W. Arner, Robin Veidt, and Dirk A. Zetzsche. 2020. “Building FinTech Ecosystems: Regulatory Sandboxes, Innovation Hubs, and Beyond .” Wash U. J. L. & Pol'y, 51, Pp. 55.Abstract
Around the world, regulators and policymakers are working to support the development of financial technology (FinTech) ecosystems. As one example, over 50 jurisdictions have now established or announced “financial regulatory sandboxes”. Others have announced or established “innovation hubs”, sometimes incorporating a regulatory sandbox as one element. This article argues that innovation hubs provide all the benefits that the policy discussion associates with regulatory sandboxes, while avoiding most downsides of regulatory sandboxes, and that many benefits typically attributed to sandboxes are the result of inconsistent terminology, and actually accrue from the work of innovation hubs. The paper presents, as the first contribution of its kind, data on regulatory sandboxes and innovation hubs and argues that the data so far available on sandboxes does not justify the statement that regulatory sandboxes are the most effective approach to building FinTech ecosystems. Given that regulatory sandboxes require significant financial contributions, sometimes new legislation, and intense regulatory risk management, and that sandboxes do not work as well on a stand-alone basis (i.e. without an innovation hub), while innovation hubs alone can provide more significant benefits in supporting the development of a FinTech ecosystem, regulators should focus their resources on developing effective innovation hubs, including in appropriate cases a sandbox as one possible element.
Craig Calcaterra, Wulf A. Kaal, and Vadhindran Rao. 2020. “Stable Cryptocurrencies.” Wash. U. J. L. & Pol'y, 61, Pp. 193.Abstract
The authors examine the emergence and proliferation of stable cryptocurrencies and their uses. After evaluating the core shortcomings associated with fiat currencies, the authors highlight the benefits of stable cryptocurrencies for monetary policy making, overall market stability, and their bilateral impact on the emergence of decentralized commerce. The transition to digital currencies has already started. It is a matter of time until the use cases and applications of stable cryptocurrencies become more mainstream.
Jess Cheng. 2020. “How to Build a Stablecoin: Certainty, Finality, and Stability Through Commercial Law Principles.” Berkeley Bus. L. R., 17, Pp. 320.Abstract
New market practices and business models are emerging around so-called stablecoins, a type of crypto asset with certain features that seek to stabilize the price of the coin. Stablecoins have the potential to offer a borderless and more accessible way to pay, addressing many shortcomings in existing payment systems around the world. Yet, these developments also raise fundamental legal issues. What questions should lawyers and financial advisors be asking to ensure risks are adequately addressed? What answers can stablecoin innovators give to financial authorities and industry stakeholders to provide comfort that there is a sound legal basis for the business models and market practices around their coin? U.S. commercial law, which is chiefly designed to support financial market activities, contains powerful principles that can usefully serve as building blocks for a foundational legal framework to uniquely advance a stablecoin’s economic purpose as a medium of exchange — allowing technologists to move fast, but safely. This Article spells out how to build such a legal basis by leveraging the core commercial law principles of (i) focusing on the principles of settlement finality, (ii) rules for adverse claims, (iii) discharge of the underlying obligation, and (iv) the concept of a security entitlement. It maps out how these principles are embodied under the U.S. commercial laws of investment securities (UCC Article 8) and of payments (UCC Articles 3, 4, and 4A). The goal in doing so is to show how innovators can incorporate novel, technology-driven market practices and business models into the existing financial law framework in a proven and effective way — how to leverage what is working today and does not need to be invented again. Awareness of the availability of these commercial law tools, and their limitations, can provide important help to stablecoin developers and market participants in managing their exposure, designing efficient financial innovations, and controlling the risk to the broader financial market.
Iris Chiu. Forthcoming. “Transforming the Financial Advice Market – The Roles of Robo-advice, Financial Regulation and Public Governance in the UK.” Banking Fin. L. Rev.Abstract
Access to financial advice has been a matter of concern for financial regulators and policy-makers. In this age of financialisation, individuals have greater responsibility to seek private sector financial products and services in order to meet their financial needs in life. However, individuals’ needs for financial advice are often not met optimally. Advice that is compliant with regulatory requirements need not be tailor-made to individuals’ needs, and inhibiting factors such as inertia, distrust and cost all play a part in individuals’ disengagement from the financial advice industry. The article discusses a series of regulatory reforms in the UK to address issues such as distrust but such reforms entail trade-offs, such as increased cost in return for improved perceived credibility in the financial advice industry. The advent of robo-advice shows some promise in encouraging access to financial advice as it is often low-cost and easy to access at one’s convenience. However, robo-advice is at the moment a standardised and limited service that is yet far from meeting individual needs for personal financial planning. The article considers a futuristic vision of artificial intelligence that is enabled with both data and investment strategy know-how in order to deliver personalised financial advice to the mass market. The article argues that such a vision attracts changes in regulatory governance, and above all, governments should consider if personalised financial advice ought to be a public good. If so, a new scheme of public and private provision of financial advice could be fostered, with the help of technological transformations.
Dennis Chu. 2018. “Broker-Dealers for Virtual Currency: Regulating Cryptocurrency Wallets and Exchanges.” Colum. L. Rev., 118, Pp. 2323.Abstract
With the rise of cryptocurrency as a popular investment, cryptocurrency wallets and exchanges have proliferated, offering platforms that allow investors to hold and trade cryptocurrency. Because these platforms hold cryptocurrency on their customers’ behalf, they present problems associated with custody. Namely, how do investors ensure that these platforms do not misuse or mishandle their assets? And how will customer assets be treated if a platform enters bankruptcy? To answer these questions, this Note looks to the experience of broker-dealers, exploring the similarities between the problems confronting cryptocurrency platforms today and the problems that brokerdealers faced in the late 1960s. Widespread broker-dealer failures during the late 1960s revealed problems with mishandled client assets, insufficient capital, and inadequate protection of customer assets in bankruptcy. Similar problems plague cryptocurrency platforms today. This Note therefore points to the regulation of broker-dealers as a template for how to approach the regulation of cryptocurrency platforms. Looking to the regulatory responses to broker-dealer failures in the late 1960s—including the customer protection rule, net capital rule, and alternative bankruptcy regime created by the Securities Investor Protection Act—this Note proposes that a similar regulatory framework could be applied to cryptocurrency platforms.
R.H. Coase. 1937. “The Nature of the Firm.” Economica, 4, Pp. 386.Abstract
Economics and laypeople use the term 'firm' differently. In explicitly defining both usages, Coase (1937) reconciles the gap between the idea that the price mechanism controls the allocation of resources within a market and the idea that conscious power, in the form of the entrepreneur, must do so. The entrepreneur embodies both initiative, or forecasting people's desires, and management, or responding to market forces. The relationships that form when an entrepreneur directs resources define a firm. Firms may emerge when uncertainty allows buyers to dictate longer term contracts, when an entrepreneur can save marketing costs, and/or when government regulations like sales tax encourage it. Coase critiques a number of definitions of firms and explanations of their birth and growth. Usher and Dobb argue that the division of labor engenders the firm's emergence, but the price mechanism is already an 'integrating force in a differentiated economy.' The real question is why the entrepreneur should replace the price mechanism as the integrating force. Knight argues that uncertainty breeds a group that guarantees wages. Coase objects for two reasons. Not only do knowledge and expertise become commodities, Knight also hypothesizes that it would be impractical for one to purchase goods or services without supervising the work. But contracts illustrate the flaw: first, expertise and knowledge can be purchased via a contract; second, purchasers don't necessarily - and often don't - supervise contracted labor. Thus Knight's conceptualization cannot explain why the entrepreneur should supercede the price mechanism. Coase examines how firms grow: many assume that a firm's size is limited if its cost curve slopes upward under perfect competition, because it will not pay for more output than can be produced when marginal cost equals marginal revenue. The proposition fails to explain not only why a market contains more than one variety of a good, but also that there may be a point at which producing a new product is less costly than an old one. Four factors determine firm growth: the cost of using the market, the cost of organizing different entrepreneurs, the number, and finally the quantity produced. These definitions approximate the firm's organization. The question will always be whether it pays for the entrepreneur to take on additional costs and therefore grow. At the margin, the costs of organizing under the firm will equal the costs of organizing within the firm or of allowing the price mechanism to organize it. Businesses will continue to experiment, maintaining equilibrium. While equilibrium implies a static market, dynamic factors are also present; changing costs within both a firm and the larger market explain changes in firm size. This theory of moving equilibrium allows for a better understanding of the entrepreneur, who both innovates and manages. (RAS)