Finance and economic development in a model with credit rationing

This 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 financial sector and economic growth in the presence of default risk.

Publication infos:
Geneva, The Graduate Institute of International and Development Studies, 2013
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Number of pages:
13 p.
Graduate Institute of International and Development Studies working paper ; no. 02/2013

 Record created 2013-03-08, last modified 2018-01-28

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