Finance and Economic Development in a Model with Credit Rationing
AbstractThis paper develops a simple model with credit rationing and endogenous default risk in which the expectation of a bailout may lead to a financial sector which is too large with respect to the the social optimum. The paper concludes with a short discussion of how this model could be used as a building block for models aimed at endogenizing the probability of a bailout, and discussing the relationship between the size of the finanancial sector and economic growth in the presence of default risk.
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Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 02-2013.
Length: 14 pages
Date of creation: 01 Feb 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-08 (All new papers)
- NEP-BAN-2013-02-08 (Banking)
- NEP-FDG-2013-02-08 (Financial Development & Growth)
- NEP-RMG-2013-02-08 (Risk Management)
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