Banking and Insurance

Joseph Haubrich () and Robert King ()

No 1312, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the economic role of financial institutions in economies where agents' incomes are subject to privately observable, idiosyncratic random events. The information structure precludes conventional insurance arrangements. However, a financial institution -- perhaps best viewed as a savings bank -- can provide partial insurance by generating a time pattern of deposit returns that redistributes wealth from agents with high incomes to those with low incomes, resulting in a level of expected utility higher than that achievable in simple security markets. Insurance is incomplete because the bank faces a tradeoff between provision of insurance and maintenance of private incentives.

Date: 1984-03
Note: EFG
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Journal Article: Banking and insurance (1990)
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