EconPapers    
Economics at your fingertips  
 

Financial development and occupational choice

Enoch Hill () and David Perez-Reyna ()

Journal of Macroeconomics, 2017, vol. 54, issue PB, 393-409

Abstract: In this paper we incorporate occupational choice in the style of Lucas (1978) with an additional dimension of heterogeneity in wealth into a model of banking. We use this model to better understand how development of the financial sector affects misallocation and occupational choice. Our model demonstrates three channels through which enforcement of credit contracts are tied to misallocation. Improvements in enforcement shifts the risks in variance of output from banks toward entrepreneurs; consequently, improved enforcement can serve as a form of risk sharing in the absence of state contingent loans. Second, reduction in the risk for bankers improves the appeal of banking and the general equilibrium effect shrinks the margin of intermediation, reducing the importance of initial wealth distributions. Finally, improved enforcement leads to more relaxed credit constraints, as banks are willing to lend more to entrepreneurs, further reducing the importance of initial wealth in occupational choice.

Keywords: Financial development; Misallocation; Occupational choice (search for similar items in EconPapers)
JEL-codes: E44 G21 J24 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070417302021
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:54:y:2017:i:pb:p:393-409

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-10-10
Handle: RePEc:eee:jmacro:v:54:y:2017:i:pb:p:393-409