The Emergence and Persistence of the Anglo-Saxon and German Financial Systems

Sandeep Baliga () and Ben Polak ()
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Ben Polak: Department of Economics, Yale University

No 5, Economics Working Papers from Institute for Advanced Study, School of Social Science

Abstract: We use a moral hazard model to compare monitored (nontraded) bank loans and traded (nonmonitored) bonds as sources of external funds for industry. We contrast the theoretical conditions that favor each system with the historical conditions prevailing when these financial systems evolved during the British and German industrial revolutions. To study persistence, we consider an entry model where financiers take the industrial structure as given when they lend and firms take the financial system as given when they borrow. We show multiple equilibria can exist, compare equilibria in welfare terms, and discuss their robustness to coordination between lenders and borrowers. Copyright 2004, Oxford University Press.

Keywords: Monitoring; Traded Debt; Anglo-Saxon and German Financial Institutions; Industrialization; Internal and External Economies; Moral Hazard and Free Entry (search for similar items in EconPapers)
JEL-codes: N20 D82 G20 (search for similar items in EconPapers)
Date: 2001-06
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Published in Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17 (1), pp. 129-163

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Journal Article: The Emergence and Persistence of the Anglo-Saxon and German Financial Systems (2004)
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