Securitization and Aggregate Investment Efficiency

Afrasiab Mirza and Eric Stephens

No 16-05, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper studies the efficiency of competitive equilibria in economies where the expansion of investment is facilitated by securitization. We show that the use of securitization is generally associated with constrained inefficient aggregate investment, thereby justifying regulatory intervention in markets for securitized assets. We examine the effectiveness of three policy instruments to address this inefficiency: ex-ante capital / leverage requirements, skin-in-the game (retention) requirements and initiatives to improve transparency in the securitization process. We find that leverage/capital restrictions and improved transparency can increase welfare in our environment, but that forcing originators to hold additional skin-in-the game can never increase welfare.

Keywords: Securitization; pecuniary externalities; nancial frictions; macroprudential regulation; re-sales; incomplete markets; retention requirements; skin in the game (search for similar items in EconPapers)
JEL-codes: D52 D53 E44 G18 G23 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-03-25, Revised 2017-01-24
New Economics Papers: this item is included in nep-dge and nep-mac
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Published: Carleton Economic Papers

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Journal Article: Securitization and aggregate investment efficiency (2022)
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