LSE Research channel | Video

Contributor(s): Mirko Draca | What effect does raising the number of police have on crime? It might seem obvious that more police means fewer crimes - but things aren't that simple. For a start, there's the so called "endogeneity problem". Research economist Mirko Draca explains how the July 2005 terrorist attacks became a "natural experiment".

Contributor(s): Dr Paul Woolley | The huge expansion of the global financial system in recent decades has now culminated in a devastating downfall. 'It has revealed deep flaws in the structure and functioning of finance, as well as in our understanding of how it works,' says Dr Paul Woolley, a former fund manager and IMF economist, who last year funded two research centres at LSE and the University of Toulouse for the study of market dysfunctionality. The two centres are set to produce a stream of research over the next few years that will challenge the paradigm of market efficiency that has prevailed more or less unchallenged since Adam Smith and his belief in the 'invisible hand'. 'They will show how the misalignment of interests between the agents (such as the banks, fund managers and brokers) and principals (the end-investors and man in the street) leads to volatility of security prices, misallocation of capital and macro-economic calamity, as well as to the sheer scale of the finance sector,' said Dr Woolley. Paul Woolley expands on his reasons for establishing the two research centres in this film.