The social costs of bank market power: Evidence from Mexico

Liliana Solís and Joaquin Maudos ()

Journal of Comparative Economics, 2008, vol. 36, issue 3, pages 467-488

Abstract: 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.

Keywords: Banking; Market; power; Cost; efficiency; Profit; efficiency; Welfare; loss (search for similar items in EconPapers)
Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jcecon:v:36:y:2008:i:3:p:467-488

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