Financial Intermediation, Moral Hazard, And Pareto Inferior Trade
AbstractA simple two-country model of international trade under uncertainty is considered, where investors choose uncertain projects depending on interest rates, with high rates leading to risky projects. If investment is financed by bond markets, there can be asymmetric equilibria which can be Pareto improved. For some parameter values, investment in one country cannot be financed by the bond market. In this situation, a bank which can monitor the investment choices will improve the welfare in both countries, while giving rise to new problems of information asymmetry
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 140.
Date of creation: 11 Aug 2004
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capital outflow; financial intermediation; moral hazard;
Find related papers by JEL classification:
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
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