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Finance and Economic Development in a Model with Credit Rationing

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Abstract

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 finanancial sector and economic growth in the presence of default risk.

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  • Jean-Louis Arcand & Enrico Berkes & Ugo Panizza, 2013. "Finance and Economic Development in a Model with Credit Rationing," IHEID Working Papers 02-2013, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp02-2013
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    9. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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