The impact of public ownership in the lending sector

Arup Bose, Debashis Pal and David Sappington

Canadian Journal of Economics, 2014, vol. 47, issue 4, 1282-1311

Abstract: We examine the effects of increased government ownership of suppliers in the lending sector, which induces increased concern with total welfare and reduced concern with profit. Such increased ownership of a lender can have unanticipated effects. For instance, it can increase lender profit. Furthermore, borrower welfare often declines as government ownership increases in a lender with a relatively limited ability to discern the true quality of borrowers projects. In addition, there are settings in which increased government ownership of a lender has no impact on either lender profit or borrower welfare.

Date: 2014
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