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The social costs of bank market power: Evidence from Mexico

  • Solís, Liliana
  • Maudos, Joaquín

This paper estimates the social costs of market power (Harberger's triangle) in the Mexican banking system over the period 1993-2005. It also tests the so-called "quiet life" hypothesis which postulates a negative effect of market power on bank management efficiency. The social cost attributable to market power in 2005 is 0.15% of GDP, while that deriving from the cost (profit) inefficiency of banking management is 0.021% (0.075%) of GDP. The results allow us to reject the quiet life hypothesis in the deposits market. However, market power in the setting of the interest rate on loans has a negative effect on cost efficiency. Journal of Comparative Economics 36 (3) (2008) 467-488.

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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 36 (2008)
Issue (Month): 3 (September)
Pages: 467-488

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Handle: RePEc:eee:jcecon:v:36:y:2008:i:3:p:467-488
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