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Endogenous risk in monopolistic competition

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  • Damjanovic, Vladislav

Abstract

We consider a model of financial intermediation with a monopolistic competition market structure. A non-monotonic relationship between risk measured as a probability of default and the degree of competition is established.

Suggested Citation

  • Damjanovic, Vladislav, 2013. "Endogenous risk in monopolistic competition," Economics Letters, Elsevier, vol. 120(2), pages 220-223.
  • Handle: RePEc:eee:ecolet:v:120:y:2013:i:2:p:220-223 DOI: 10.1016/j.econlet.2013.04.027
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    References listed on IDEAS

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    1. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
    2. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, June.
    3. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
    4. Gianni De Nicolo & John H. Boyd, 2003. "Bank Risk-Taking and Competition Revisited," IMF Working Papers 03/114, International Monetary Fund.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, pages 297-308.
    6. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-480, June.
    7. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, September.
    8. Galina Vereshchagina & Hugo A. Hopenhayn, 2009. "Risk Taking by Entrepreneurs," American Economic Review, American Economic Association, pages 1808-1830.
    9. Franklin Allen & Douglas Gale, 2001. "Comparing Financial Systems," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511258, January.
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    Cited by:

    1. Soukup, A. & BrcÌŒaÌ k, J. & Svoboda, R., 2014. "Monopolistic Competition in the International Trade of Agricultural Products," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 6(1), March.
    2. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2013. "Universal vs separated banking with deposit insurance in a macro model," Discussion Papers 1308, Exeter University, Department of Economics.
    3. Deli, Yota & Delis, Manthos D. & Hasan, Iftekhar & Liu, Liuling, 2016. "Bank enforcement actions and the terms of lending," Research Discussion Papers 23/2016, Bank of Finland.

    More about this item

    Keywords

    Monopolistic competition; Endogenous risk; Banking sector;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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